These key risks may play spoilsport on Dalal Street in 2022

Indian equity market kicked off the first day of the new year on a firm note after a stupendous 2021 for investors. The benchmark BSE Sensex traded over 800 points, or 1.38 per cent, higher at 59,057 at around 1:30 pm, while the NSE Nifty index was up around 230 points, or 1.32 per cent, at 17,582.

Market watchers believe that the domestic equity market may continue to give double-digit return to investors over the next 12 months. However, factors like increasing cases of new Covid variant, rising inflation, liquidity risks and earnings disappointments may play spoilsport.

Exide Life Insurance CIO Shyamsunder Bhat said, "At present, we are witnessing supply-side inflation, partly due to supply bottlenecks and partly due to excess liquidity having flowed into commodities. The tapering of liquidity by central banks has commenced and therefore this liquidity tailwind for equities may not continue much into 2022."

He further added that the market valuations are building in a strong earnings growth in the current as well as the next financial year, and disappointments on that front could be the largest of these risks.

Both Sensex and Nifty rallied more than 20 per cent in 2021, fuelled by the gush of liquidity and robust inflows from institutional investors.

On the other hand, Joseph Thomas, head of research at Emkay Wealth Management, said that significant risks to equities could emerge from sustained high oil prices and high inflation, acceleration of normalisation or tapering in India as well as abroad, and the negative impact of a shutdown due to a potential lethal spread of the new variant of the virus. However, the impact may not be as deep and disruptive as it was last time due to the pre-emptive policy measures which have already been initiated.

The country recorded 33,750 new COVID-19 cases and 123 deaths in the last 24 hours, pushing the total death toll to 4,81,893, as per data released by the Ministry of Health on January 3, 2022. The active cases stood at 1,45,582.

Sunil Nyati, managing director at Swastika Investmart said, "If we talk about the risk factors, then uncertainty about Covid is still there while inflation is another concern. Otherwise, there are no major worries visible. Geopolitical issues may cause some volatility where Ukraine-Russian and China-Taiwan issues are prominent. We will have elections in big states like UP and Punjab that may also cause some volatility in the market."

Gaurav Dua, head-capital market strategy at Sharekhan by BNP Paribas, sees Nifty at around 19,000 by December-end. "Earlier than expected hike in interest rates by the central banks, persistent outbreak of COVID-19 despite vaccinations and geopolitical risk are among the key risk for equities next year. Investors must focus on quality or fundamental aspects of companies and valuations," Dua said.

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