The season of year-end listicles will start in the next 8-10 days—5-stocks that became multibaggers in 2021, 5 hot stocks to buy in 2022, 5 best mutual funds to buy in 2022…just to give a few examples.
Frankly, nothing changes overnight when the calendar turns. Still, if a New Year calls for a change of guard, perhaps it’s crucial to see which trends of 2021 might be losing steam and whether there are any new developments worth monitoring in the New Year?
Tech companies have gained immensely during the pandemic phase as digitalization trends seem to have taken a leap of several years.
Thus the most important trend to watch out for is whether the dream run of big-tech companies running monopoly businesses, e-commerce platforms and loss-making unicorns will be challenged.
Let’s look at some recent developments.
The Italian regulator has recently slammed a penalty of USD 1.3 billion on the US tech behemoth, Amazon, for misusing its market leadership position. According to the regulator, Amazon has allegedly favoured sellers signing-up for its in-house logistics service of ‘Fulfilment by Amazon (FBA)’.
Surprisingly 2021 has been the third year in a row when Amazon has faced serious investigations in the European Union (EU) region. In 2019, it was investigated for using the sensitive information of retailers selling on its platforms; in 2020 investigations revolved around unjust promotion of its own brands.
Although the US giant has said that it will make a counter appeal to the regulator, for now the fine of USD 1.3 billion imposed on Amazon has been the highest so far in Europe. Will this prompt other regulators across the globe to follow suit? It will be interesting to watch.
Moreover, the impact of such regulatory actions on the partners of e-commerce companies selling on their platforms must also be tracked.
You see, there’s nothing new about competitors accusing Google, Microsoft, Facebook (Meta) and other tech giants of copying them or acquiring them to decimate competition.
But lately, tech giants have also come under heavy public scrutiny for more serious allegations such as being responsible for the spread of conspiracies, misinformation and hate speech. The case in point is Frances Haugen’s whistleblower allegations against Meta (Facebook).
While we have no view on the on-going matters, what we know is such instances are important to track even for the investor community. Aren’t investors buying the FAANG story? After all, valuation multiples account for and discount all such factors, don’t they?
Various experts have started voicing their concerns against unprecedented stock market rallies in tech stocks.
Wondering why Indian investors should be concerned?
During the calendar year 2021, we spoke to Sandeep Tandon of Quant Mutual Fund on a couple of occasions. And as we interpreted from the discussion with him, tech stocks might be very close to their peak valuations globally.
Although that doesn’t necessarily mean they are going to fall, their chances of generating market beating returns might have already reduced substantially.
In other words, while the digitalization theme might still remain strong, stock market performance of these companies might be already factoring in most of the positives.
Given that the Federal Reserve in the US may unwind its fiscal stimulus measures in an accelerated manner, inflows of Foreign Portfolio Investors (FPIs) have started ebbing out. Will FPIs return to Indian markets in 2022 after a sustained selling in the second-half of 2021?
In the absence of FPIs, the market will again have to depend on Domestic Individual Investors (DIIs) and retail investors who seem to be more active in the primary market nowadays.
The collections through Systematic Investment Plans (SIPs) of equity mutual funds have been upwards of Rs 1.02 lakh crore in the first 11 months of 2021.
It’s noteworthy that between 2004 and 2006, the Federal Reserve (Fed) hiked policy rates 17 times yet equity markets continued to surge. Thus, you shouldn’t be overly concerned about Fed policy actions.
For Indian markets growth and valuations is the key.
Despite all odds, sin goods companies—those engaged in manufacturing of alcohol and tobacco etc. or the ones running casinos—have done well in 2021.
While the spotlight was on ESG investing, metals, IT, etc., companies such as Delta Corp and Radico Khaitan rallied, without making much noise. Even ITC showed some signs of price revival.
Will they continue to creep up even in 2022? Keep an eye on the emerging trends.
Most market experts seem to be glued to real estate and infrastructure sectors hoping to see a major outperformance. And interestingly, hardly anybody appears bearish on financials even though they have underperformed broadly, barring a few exceptions.
But the real outperformance often comes from the most neglected corners of the market. Who thought in March 2020 that metals will comeback in such a big way?
Similarly, it won’t be a surprise if textiles stocks stand out in 2022 (Earlier this year, we covered a story Textile Sector: a turnaround story?)
The turnaround is evident already. Some textiles companies have outperformed the broader indices by far, bucking a strong multi-year downtrend.
Nonetheless, it’s important to be careful with stock selection.
Even after considering the recent correction, markets have come a long way from their pre-pandemic levels and 2022 could be a tricky and volatile year.
Predicting market levels, therefore, is a futile exercise.
It’s important to have a realistic return expectation.
And it would be an equally good idea to start a new SIP in a value fund at this juncture. SIP is a simple way to benefit from volatility. When markets go down you accumulate more units and when they go up your investments rise in value.
Let’s spread information and insights, not hate or conspiracies in 2022 and beyond.
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You may also like to read: Aegis Logistics: A potential beneficiary of India’s energy transition?
Disclaimer: The blog is for information purposes only and anything mentioned herein shouldn’t be construed as a fundamental reason to buy/hold/sell any stock. Furthermore, the information provided in the blog and observations made therefrom shouldn’t be treated as the extension of recommendations made on the other properties of Ventura Securities.
We strongly suggest you to consult your financial advisor before taking any decision pertaining to your finances. Asset allocation becomes extremely relevant.
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