2022: Be Choosy About Stocks

So which sectors are likely to do well in 2022?
Should you focus on domestic economy-related sectors or export-oriented ones?

Dalal Street witnessed a record breaking 2021, with the frontline indices -- the S&P BSE Sensex and Nifty 50 -- surging over 20 per cent each and to hit new highs during the calendar year despite threats from coronavirus variants -- Delta and Omicron, high crude oil prices and change in monetary policy stance by central bankers around the world.

Sector-wise, 2021 belonged to the power, metal, realty and information technology sectors that were among the top performers in the year gone by.

The phenomenal subscription levels of some of the IPO and stellar listing saw the BSE IPO index notch up gains of around 54 per cent during the year, data show.

While most analysts suggest that the road ahead for the markets in 2022 will be bumpy and the market returns will be determined by a host of factors including the developments and the impact of new coronavirus variants, global central bank policies, oil prices, bond yields, rupee-dollar equation and growth in corporate earnings, investors need to be selective while putting in their hard earned money in equities.

So which sectors are likely to do well in 2022? Should you focus on domestic economy-related sectors or export-oriented ones?

"While the pick-up in domestic economy augurs well for the related stocks, the rise in exports (as seen over the past few months) and the rupee's depreciation augurs well for stocks of export-oriented companies. So, the stock selection has to be a blend of both," advises G Chokkalingam, founder and chief investment officer, Equinomics Research.

With the withdrawal of easy and cheap money globally, fundamentals would come to fore, analysts suggest.

Therefore, one needs to stay invested in the right quality of stocks, keeping the bigger picture in mind of a multi-year growth upcycle ahead.

'In terms of sectors, we prefer real estate and building material stocks (cement, pipes, tiles, plyboard etc), corporate sector banks, IT services, and select stocks in the consumer and engineering space. On the other hand, global commodities (such as metals, chemicals, and energy) along with the small-cap space could underperform in 2022,' Gaurav Dua, senior vice-president and head of capital market strategy at Sharekhan by BNP Paribas, said in a recent note.

DLF, ICICI Bank, Infosys, Maruti Suzuki, SBI, UltraTech Cement, Reliance Industries are their preferred picks in the large-cap universe; while Balkrishna Tyres, Polycab, Gland Pharma, Healthcare Global Enterprises, ISGEC Heavy Engineering, Tata Power, Greenpanel Industries and Radico Khaitan are the mid, small-cap stocks the brokerage is betting on.

Ahead of the Union Budget 2022, Credit Suisse Wealth Management expects infrastructure, cement and industrial companies to do well.

'Given our expectation of higher GDP growth, domestic cyclicals such as private banks and large public sector banks are our preferred segments. Likely-hood of a sharp improvement in the hiring outlook and wage growth 2022, we turn constructive on selected auto companies,' wrote Jitendra Gohil, head of India equity research at Credit Suisse Wealth Management, in a recent note co-authored with Premal Kamdar.

HSBC, on the other hand, suggests staying away from those that have regulatory uncertainty (PSU banks, Utilities), auto components (chip shortage, margin headwinds) and real estate (appears expensive post the strong run-up in 2021) at this point in time.

'Prefer IT (strong earnings outlook, beneficiary of digital push), Healthcare (recent laggard, with improving sector dynamics) and Telecoms (improving industry structure), for the defensiveness they offer. Selectively like consumer names across staples and discretionary. Remain neutral on financials (prefer private banks on credit cycle recovery) and autos (a laggard, but faces near-term uncertainty on supply-side disruption),' wrote Herald van der Linde, head of equity strategy for Asia Pacific at HSBC in a recent report.

Feature Presentation: Aslam Hunani/Rediff.com