Market outlook 2022: Brokerages remain upbeat; see Sensex at new high

Inflation, winding down of stimulus from major central banks such as the US Fed and the ECB, developments in China and the impact of the new Covid variants, if any, are some of the key risks

Despite the stellar run in 2021 that saw most global equity markets record healthy gains, brokerages remain bullish on equities for 2022. Though they rule out the easy money making phase that was backed by liquidity from most central banks, they believe the returns from the market in 2022 will track growth in corporate earnings.

Inflation, winding down of stimulus from major central banks such as the US Federal Reserve (US Fed) and the European Central Bank (ECB), developments in China and the impact of the new Covid variants, if any, are some of the key risks that are likely to keep the markets choppy in 2022.

Here is a quick view of how global brokerages see the markets playing out in 2022 and their investing strategy in this backdrop.

Jefferies

Asia's performance in 2022 will continue to be dominated by significant changes in China. Investors should keep a close eye on further cooling of the mainland economy. India has entered a period of an economic super-cycle driven by a housing cycle turnaround. We estimate over 7 per cent GDP growth and over 15 per cent earnings growth for CY22/FY23. Inflation impacting company margins and oil driving balance of payment (BoP) negative are the key risks. Valuation concerns and US Fed rate hike worries might create periods of correction, but those should be used to add cyclicals. Markets should eventually hit a new high in 2022. Remain overweight on financials, property and autos.

BofA Securities

Global liquidity – the key predictive driver of global equity markets since the Global Financial Crisis (GFC) – is on course for a peak around March 2022. We forecast the G-4 central banks’ balance sheets to expand by another $750 billion by that time (from $30.7 trillion now to $31.4 trillion in March 2022) and then peak out. Markets are likely to reach a high around the same time and then meander around aimlessly, probably with a downward bias as the earnings cycle in China surprises very negatively and the US dollar remains strong. 

BNP Paribas

Asian equities should offer investors moderate returns in 2022. Precise stock and sector selection would be essential for generating supernormal returns. Overweight are on China, India and Korea in Asian portfolio. We like India despite its steep valuations; strong growth forecast in the medium-term should support valuations. We like the stability of macroeconomic parameters that should support consumption and investments, leading to continued earnings estimate upgrades. Sensex target: 62,000

Nomura

Despite headwinds, we expect Asian stocks to deliver around 18 per cent return by 2022-end driven largely by earnings growth and flat multiples from low base. Peaking US inflation, bottoming out of growth / modest policy easing in China into the first quarter of 2022 should provide relief eventually. Modest valuations, light investor positioning, and fundamentals are buffers for Asian stocks to withstand near-term volatility.

Credit Suisse

Foresee attractive returns from global equities in 2022 with earnings remaining the key driver. Expect equity segments that lagged the global recovery from the pandemic shock to emerge as bright spots alongside industries that benefit from secular growth trends. Nifty earnings per share (EPS) is forecast to grow 15 per cent annually FY19-24. Financials to contribute nearly half of Nifty EPS FY19-24 (45 per cent FY22-24). Prefer domestic cyclicals over global cyclicals, and are overweight on Financials, Industrials and cement; underweight on IT, metals and discretionary. Top picks: SBI, HDFC, and UltraTech Cement.

Morgan Stanley

We expect emerging market (EM) equities in aggregate to continue to struggle next year, with only 3 per cent upside to our December 2022 target. More constructive on Japan equities, with 12 per cent upside to our TOPIX target of 2250. We recently downgraded India to equal-weight, after an exceptionally strong performance year-to-date (YTD) led to an unsustainable valuation re-rating, although we remain structurally bullish and look for stock-level opportunities to hold exposure. See the Sensex hitting 70,000 mark (base case; 50 per cent probability) by December 2022; 80,000 level in a bull-case scenario (30 per cent probability) and hover around the 50,000 mark as a bear-case (20 per cent probability).