Wealth Management

Financial Roadmap

Research

Know Us

2022 Outlook- Economic trends which may dominate the minds of investors

The opening-up of a strong economic recovery is driven by the improved situation of the Covid-19 outbreak. Consumption is expected to play a significant role in the growth of the Indian economy in 2022. Goldman Sachs has forecast that the Indian GDP would have a 9.1 % year-on-year growth in 2022, while the growth in 2021 is 8 %1. The International Monetary Fund perceives the continuation of capital spending by the government as well as the recovery of corporate capital spending in the forthcoming year. The inflation in the Consumer Price Index (CPI) is forecasted to rise to 5.8 % year-over-year in 2022 compared to 5.2 % in 2021. This is due to the rise in core inflation areas as the firms pass on increased manufacturing costs to the consumers2. This increase in consumables will be backed up by the expected growth and recovery in consumer demands keeping pace with the recovery of the economy.

An investor's returns from the stock market generally come in waves, as there can be periods of consolidation, sudden rises or sharp corrections. These waves in returns have strong implications for stock market investors. The sprint in the stock market following the crash of March 2020 seems to be over, which implies that 2022 will be a year offering moderate returns. Therefore, there would be a trend to search for stocks and segments being able to generate over-the-top returns as well as focusing on long-term systematic investments1. As per Nomura, Asian stocks would be less likely to see declines in the year 2022 as a result of valuations and positioning as well as increasing US inflation2.

As per the Goldman Sachs report, RBI will likely raise repo rates from the second quarter of 20221. Santanu Sengupta, Economist at Goldman Sachs, states that the repo rate hike in 2022 will reach 75 points cumulatively. The commodities strategists expect a hike in crude oil prices, and resultantly the Current Account Deficit (CAD) is said to expand to $52 billion2. However, the capital flows will likely remain buoyant in the year 2022 due to passive bond inflows and a strong IPO pipeline with the country's expected inclusion in the JPM GBI-EM Bond Index by the end of 2022 or the starting of 20231.

The economy will see normalization of the business cycle with being decidedly reflationary. Higher economic growth and higher interest rates will be the possible characteristics of the Indian economy. Trends in 2022 will be emphasized on innovation, decarbonization, deglobalization, and the transformation of the US labour market1. The pandemic-induced situation has forced many businesses to follow the path of digital innovation. This has increased the explosion of start-ups and public and private digital activity, which will lead to 2022 economic growth patterns. Supply chain localization will be perceived as a result of inventory shortages and supply-demand imbalances. The reduction in fossil fuel utilization in the pandemic period due to business closures and travel restrictions will be likely to be continued in 2022, which could put more pressure on the initial cost of imported commodities and increase inflation levels. The increased safety concerns and the urge to seek highly leveraged jobs with more wages would continue in 2022, decreasing the business firms' profit margins.2. These trends will make the investor's position investments expecting a medium growth and return. Higher inflation and economic growth will lead to higher interest rates (real and nominal), and the investors will need to focus on “technology takers in order to enjoy the benefits3”.