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Indian Stock Market Analysis 2022

Updated: Apr 26, 2022

Equities hit a new high in 2021, but the surge is anticipated to wane following year due to growing inflation, economic disruption from newer coronavirus types, and continued global supply-chain issues. Indian equities markets are expected to offer moderate returns, experience a correction, and be volatile in 2022, according to analysts, as the Reserve Bank of India is expected to hike rates and unwind excessive liquidity. India's macroeconomic fundamentals continue to be solid. As the recovery broadens, economic growth is likely to stay considerably above its long-term trend, with the possibility of further upgrades to consensus GDP growth for the year ending March 2023. Though inflation is predicted to continue over the RBI's medium-term objective of 4%, it is forecast to trend lower as supply disruptions ease and pent-up demand is released.

The markets will experience some type of correction and consolidation. As bond and stock earnings yields converge, investors can expect a steady de-rating of equities. In terms of earnings, the NSE Nifty 50 is predicted to have a 34.5 percent increase in FY22E, 16.0 percent in FY23E, and 13.3 percent in FY24E. At the moment, the Nifty 50 is valued at 24.8 times FY22E, 21.4 times FY23E, and 18.6 times FY24E earnings.

In the coming year, the unwinding of monetary policy assistance and the removal of financial support may have severe consequences for global growth and asset prices. Although Indian equities may face some short-term de-rating, valuation multiples are unlikely to return to pre-pandemic levels due to improving macroeconomic fundamentals and business balance sheets. Given the significant improvement in company fundamentals, the Indian equities market should continue to attract a bigger valuation premium than other markets, not just in comparison to its historical average. As a result, despite the Indian market's record-high valuation premium, our house stance on Indian stocks remains neutral.

In the short term, any further escalation of the Russia-Ukraine situation will almost certainly result in a few more knee-jerk reactions in the short term. However, understanding the impact of the US Fed and other central banks raising interest rates and winding down other quantitative easing initiatives in the medium term and from a more structural viewpoint is one of the most difficult tasks. However, if one were to follow the collective wisdom of the markets, a broad-based global index such as the S&P 500 may provide some guidance over the next several weeks to months. It was around early to mid-November that the US Fed first revealed its decision on unwinding quantitative easing and the low interest rate regime. The S&P 500 in the United States was trading at 4,700 at the time. Since then, the indicator has been around the same levels for more than three months, until early February, illustrating the confusing condition of global attitudes.

According to a recent Morgan Stanley research, India's main index, the Sensex, might reach 75,000 by the end of 2022 if the bull market continues. It has, however, reduced the original projection by 5,000 points. In addition, the base forecast has been lowered from 70,000 to 62,000. However, if the bears seize control of the market, the Sensex might stay at 50,000. Also check out - Biden Promises Ukraine $1.3 Billion in Additional Military and Economic Aid

According to a BloombergQuint story, the business advised investors to be careful and use the 'barbell' method when buying equities. The Indian economy is also believed to have functioned well despite increased oil costs. It is due to a booming stock market, the Reserve Bank of India's high relative rates, and the declining importance of oil in the GDP.

Further waves of the Covid-19 epidemic, according to the research, will have little influence on the markets. It further stated that the tensions between Russia and Ukraine will have an impact on Indian investors' revenues. However, if the impact is resolved quickly, the markets may do better.

Furthermore, India's economic outlook should stay favorable, with domestic demand remaining strong, as the China Plus One global investment strategy has begun to gain traction, combined with thriving start-up capital and IPO market and a strong private equity sector. It remains to be seen whether values suggest that Indian indexes will first stabilize or drop back before rising again. According to an analyst at Federated Hermes, the elements fueling India's growth are trending favorably in the long run, which should be reflected in earnings and stock values over time. Experts believe that financials (including banking, financial services, and insurance), capital goods, FMCG (fast-moving consumer goods), real estate, and technology companies will perform well in the future.



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