Corrections can be used to increase equity exposure: Aditya Birla MF

While 2021 was a record-breaking year for Indian equities with the benchmarks touching new highs on a regular basis, the current calendar year could see the returns moderate, though investors could look at intermittent corrections as buying opportunities, according to Aditya Birla Sun Life Asset Management Company (Aditya Birla MF).

 

The domestic fund house believes that valuations will start looking more reasonable in 2022 on the back of corrections, though the markets will continue to scale higher ground on the back of three key drivers of economic growth -- consumption, investment and exports.

 

"Given the rally in markets in 2021, easy money has already been made. 2022 can be looked at as a year of transition as excess liquidity gets withdrawn and interest rates inch up," stated the fund house in its equity outlook report released on Wednesday.

 

"With a slightly incremental correction, markets are expected to start looking reasonable from a valuation perspective. Hence, investors can expect moderate returns along with stock specific rally in the short term," it added.

 

According to the fund house, corporate earnings are likely to grow at a 15 per cent CAGR over the next three years, which is higher than the long-term average. More importantly, as per the fund house, Indian equity markets can give returns slightly below earnings CAGR over next three years.

 

While markets saw a one-way risk-on rally last year due to high liquidity, 2022 is likely to be more discerning and stocks will be driven by fundamentals, it said.

 

In terms of GDP growth, the fund house is of the view that the three drivers -- consumption, investment and exports -- would fire up and India could be back to its real GDP growth trend of around 6.5 per cent. 

 

Among other things, the fund house believes that discretionary consumption is picking up post Covid while "real estate is at a beginning of a new cycle, private sector investment is expected to pick up, and government spend on infrastructure development is expected to remain strong".

 

Given the robust global economic recovery, exports have already recovered and outlook remains positive, it added while highlighting the fact that IT service companies have good tailwind and China+1 strategy is helping sectors like textiles, chemicals and manufacturing among others.

 

In terms of risks, the fund house believes that a mutant virus that is resistant to vaccines, leading to new mobility restrictions and stalling of government projects, and initiatives in case of adverse election results are the two key domestic concerns.

 

On the global front, higher-than-expected inflation lasting for a long time, accelerated rate hikes, larger-than-expected slowdown in China and supply constrained rise in oil prices could be bad for India’s macros and markets.

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