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Near Term Volatile but Long Term Constructive

We wish a ‘Happy New Year’ to all our readers as we turn the final page of 2021 and welcome 2022 with great enthusiasm. May the New Year bring joy, peace, and happiness to all of you and your family. 2021 has been a remarkable year for the equity market with a robust bull run led by outperformance in the broader market. Since its inception in May’20, our Top Picks basket has delivered an astounding return of 124%, significantly higher than the 87% return delivered by Nifty 50 over the same period. Dec’21 was a volatile month marked by a weakness in the global market due to rising concerns over inflation and faster tapering. Moreover, the advent of the new Covid-19 variant kept volatility high and forced equity investors to adopt a more cautious stance. Our Top picks basket, however, resiliently sailed through the volatile times and delivered market-beating returns of 5.3% during the month.

Returns for the year were broad-based, primarily on account of higher participation across all stock categories as well as in the sectors that had exhibited relatively narrower participation in the pre-pandemic years. Nifty delivered an excellent return of 24% for the year which stood significantly better than the returns it posted in the previous three years. Nifty Midcap 100 and Nifty Smallcap 250 delivered 46% and 62% returns respectively in 2021, which stood superior to the previous years’ return as well.

2021, with its strong closing, has now laid a robust foundation for 2022, which is expected to be the year of balance sheet strength driven by significant improvement in corporate profitability. With current valuations offering a limited scope of further expansion, an increase in corporate earnings will primarily drive the market returns moving forward. Against this backdrop, our core themes of Digital, Telecom, Banking, Rural, Staples, and Consumer Discretionary continue to remain relevant in 2022 as well. In our Top picks, we book profit in Navin Fluorine which has delivered outstanding returns and ADD Bata India as a consumer discretionary play. Upcoming Union Budget will be critical for Manufacturing, Banking and Infrastructure sectors.

Our key themes are as follow:

Value and Quality: Value and Quality stood as our top-performing styles in the last one month while Growth continued to lag. Large Caps is likely to catch up in the near term. The Momentum theme has seen good traction in recent months followed by Value and Quality themes. The growth theme, which has continued to lag, presents a curious case. While Value continues to be a robust theme over a slightly longer time horizon, we believe the Quality theme is likely to outperform the current levels considering a notable market correction and significantly increased volatility in the last three months. Furthermore, though Large caps have outperformed Small and Mid Caps in the last 3 months, Value seems to be emerging in the Small and Mid Cap stocks, providing attractive investment opportunities in the broader market.

Axis Securities Top Picks

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