Domestic asset managers are betting on domestic cyclicals in 2022

Despite concerns over the impact of the Omicron variant of coronavirus, domestic asset managers are betting on a quick economic recovery in India. Sectors such as banks, real estate, domestic manufacturing, and consumer discretionary are likely to lead the rally this year, feels fund managers.

Market participants say there will be volatility in the equity markets, and one should continue to invest in a disciplined manner.

“Intermittent market corrections will be there, but that is also to remind that volatility is inherent in financial assets, while also providing opportunities to build a long-term portfolio. The growth potential of the Indian economy remains intact and gives confidence for long-term conviction to bet on India,” said A Balasubramanian, managing director and chief executive officer at Aditya Birla Sun Life Asset Management Company (AMC).

With inflation inching up and the US Federal Reserve intending to tighten liquidity, markets have been volatile in the last couple of months. “Hence, 2022 is starting with an expectation of tightening liquidity, increasing interest rates and uncertainty around Covid still remaining,” said Santosh Kumar Singh, head of research, Motilal Oswal AMC.

The fund house feels sectors such as financials, pharmaceuticals, and real estate will do well in 2022. Aditya Birla Sun Life AMC, meanwhile, is upbeat on sectors such as corporate banks, fintech, consumer discretionary, and domestic manufacturing, among others.

Market participants also say with the improvement of market breadth, bottom-up stock picking is likely to do well in the coming months.

On the debt side, with interest rates set to rise in the months to come, fund managers say it’s better to stick with shorter-end funds like money market or low-duration funds.

“Curve flattening, i.e., technically Barbell strategy with lower duration products to protect investors return would be the best theme to invest in 2022. Use of floating rate bonds and accrual funds would also provide a hedge against rising interest rate cycle,” said Devang Shah, co-head of fixed income at Axis AMC.

However, investors with a longer timeframe can look at passive strategies and short-term fund categories.