2022 can be a challenging year for Fixed-Income Assets and Equity Investors

In less than a month, 2022 is about to begin. This brings us to the right point where we can introspect about how the financial front of 2021 has been. The returns on equity and debt have been decent throughout the year with many stocks rallying to all-time highs stretching the Nifty to touch above 18000 levels giving more than 20% returns.

Despite the rise in COVID cases, the stock markets did not change their trajectory. A correction in prices made the rally stronger but 2021 did not see any major correction in prices yet a strong rally was seen on the move. Let us review the year that is about to end and analyze how the coming year could be for the investors.

A Quick Review of 2021

The severe second wave had hit the nation at the beginning of 2021. With the number of cases have come down significantly and the economy is now slowly unlocking, things are slowly starting to improve.

We have witnessed record-high subscriptions in several IPOs this year. In the first 11 months from January to November, the amount mobilized by these issues is over Rs 1 lakh crore. This number is huge compared to the previous history of initial public offering in the Indian stock markets.

With the constant up-move and back-to-back rallies in the stock market, the equity valuations have become expensive. The prices are rising since the rock bottom they hit in 2020 due to the pandemic crash. This will change now as the market rally is fading away. Some of the investors have started with a circumspect approach when it comes to picking stocks.

The Road Ahead

It is about time that investors start to focus on the specific companies and not the overall index movement. The long-term gains potential of stocks can be generated by the individual company’s growth and management quality. Investors should also stick to their asset allocation and moderate their returns in 2022 from stocks.

Since inflation has been subdued for most of 2021, the Reserve Bank of India has maintained its accommodative stance towards it. Though the returns from the bank’s fixed deposits have fallen. This has led to an increase in the number of High Networth investors who are looking for attractive returns to infuse their money into stock markets.

Fall in the fixed deposit interest rates combined with inflation leaves no excessive return in the hands of investors and this is why fixed deposits are not less attractive to rational investors.

With the possibility of inflation rising in near future and the staged recovery on the economic front, the Reserve Bank of India may raise interest rates in early 2022 and hike the reverse repo rate later in the same year. This will affect fixed-income investors as they will need to earn a reasonable yield to match up with the rising prices.

Key takeaways

Real Estate Investment Trust and Infra Investment Trust might become more attractive to many investors due to their regular income and attractive returns.

Investors investing in REITs and InvITs for a long and short term period might seek an increase in the capital with lesser risk and volatility.

In comparison with 2021, the year 2022 can be a little tough for equity shares and fixed income-generating assets.

FAQs

How does inflation affect the stock market?

As the inflation rate rises, many investors start speculating about the future prices of various goods and services. This could cause a drop in the share price of the company. A rise in the rate of inflation is commonly linked to a rise in the market price of value stocks. This is because the higher the inflation rate, the more value stocks are perceived to perform.

Who are the High Networth investors?

In India, people with an investible surplus of more than Rs. 2 Crores are referred to as high net worth individuals (HNI). This term of net worth is computed by taking into account their preserved wealth as well as the capital appreciation on existing investments.

What are REITs and InvITs?

REIT stands for Real Estate Investment Trust and InvIT stands for Infrastructure Investment Trust. These are the investment vehicles by which real estate and infrastructure companies can collect funds from investors and utilize them in building projects. The investors earn income from the units of these assets by way of interest.