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Which sectors moved equity markets in Calendar Year 2021?

The markets peaked out in late October and heavy FPI selling resulted in markets tapering after that.

January 03, 2022 9:17 IST | India Infoline News Service
During the calendar year 2021, out of the 12 months, 9 months ended with gains and 3 months ended with losses with the losses being marginal in most of the cases. The markets peaked out in late October and heavy FPI selling resulted in markets tapering after that.

If the quarterly results were encouraging despite the cost pressures, the pressure points that capped the markets were Fed hawkishness and valuation concerns. In between, Evergrande crisis in China also threatened to create a cascading effecting across Asian markets and currencies. That did not happen, but the risk is still open.

In retrospect, the year 2021 was a story of macro returns and also of stock selection. The large cap Nifty still gave impressive returns of 23.79% for year 2021. However, what really impressed the markets was the stellar returns of 40.99% on the mid-cap index and much more impressive returns of 57.45% on the small cap index. It was alpha time in 2021.

Data Source: NSE

Year 2021 was also the year of the IPOs. More than Rs131,000cr were raised via IPOs by Indian companies in the year of which just 4 digital companies raised Rs39,000cr. The largest IPO in Indian history, Paytm’s Rs18,300cr was also completed during 2021. The big IPO theme of 2021 was the interest attracted by the big ticket digital IPOs.

Year 2021 also saw several business groups like the Adani Group, Infosys and the Bajaj group cross the $100 billion group market capitalization mark. That leaves 6 business houses with group market cap in excess of $100 billion; including Reliance, Tatas and HDFC.

Key challenges for markets as it embarks on Calendar 2022

The year gone by may have been great across all equity classes, but year 2022 could see several challenges that the stock markets have to contend with.

a) Fed tapering and hawkishness is a big risk. Fed will now complete the taper by March 2022 and start rate hikes immediately after that.

b) CPI inflation in India may be under 5%, but the WPI inflation at 14.23% shows a lot of cost push pressure and oil prices are not exactly relenting.

c) Valuation concerns will predicate on quarterly earnings. If Nifty earnings grow at 20% to around Rs.873 EPS, as projected, then valuations will not be a major concern.

d) The year 2022 will be all about the LIC IPO. But there are also a slew of digital IPOs including PharmEasy, Snapdeal and Delhivery scheduled in 2022.

e) Flows will hold the key. FPIs have been sellers since October so the markets will largely predicate on steady domestic flows from mutual funds and insurance companies.

f) Finally, Omicron will continue to be an overhang for the markets due to its uncertain nature and unlikely trajectory. That will still be the global risk factor for 2022.

All sectors gave positive returns, but metals and IT were the stars

Out of the 10 sectors evaluated for the year 2021, all of them have given positive returns in the year, which is not surprising. At a time when the Nifty has given 23.79% returns during the year, it is only natural that the sector wise annual returns will be substantially positive.

The two big stars of 2021 were metals and IT. Metal stocks gained from a surge in commodity prices and rising global demand. IT services got a big boost as corporates started investing a lot more into digital initiatives. In IT, while the mid-caps were multi-baggers, big names like Infosys and Wipro more than doubled during the year.

Among other sectors that bettered the Nifty were consumer durables, oil & gas, realty and PSU banks. Consumer durables were a mix of defensive buying and bouts of revenge buying behaviour. Oil & gas was led by Reliance but refiners did do well in the light of robust crude prices. PSU Bank returns were led by SBI, but most banks benefited from an improvement in asset quality. Realty, saw solid sales traction in 2021 after a very long time.
Data Source: NSE

Private banks, FMCG and Pharma were the laggards of 2021

While all the sectors on the Nifty gave positive returns, there were several sectors that underperformed the Nifty. Autos gave 17.95% returns but underperformed the Nifty. That is understandable as the second half of 2021 was plagued by serious microchip shortages. Pharma did not have any strong triggers during the year, with the COVID story having largely played out in the Indian markets. Pharma delivered just about 9.39% in 2021.

FMCG sector returns at 9.27% was lower than the Nifty. While some amount of defensive buying was visible in FMCG stocks, the real concerns were on input cost front. Most FMCG stocks saw pressure on input costs due to a general spike in crude and agricultural prices. While some of the cost hikes were passed on, that has its own limitations.

The worst performing sector for 2021, with just 4.92% returns, was private banking. Rising NPAs and higher bond yields put pressure on NIMs of private banks. For many private banks, year 2021 was a return to a rude financial sector reality.

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