In 2021, global equity markets attained new all-time highs driven by strong corporate earnings growth even in the face of COVID restrictions, supply chain disruptions, rising oil prices, and higher labour costs.
India, on the other hand, has come out of the second COVID wave and is catching up with the rest of the world.
b) Investment: Real estate is at a beginning of a new cycle, private sector investment is expected to pick up, and government spend on infrastructure development is expected to remain strong.
c) Exports: Given the robust global economic recovery, exports have already recovered, and outlook remains positive.
On the COVID front, the new Omicron variant is spreading rapidly globally, and we are seeing a rise in cases in India.
Most of the drag on corporate profits in the past few years was due to banking and telecom sectors, which should see an improvement in profitability.
We have already seen FII outflows from emerging markets including India over the past couple of months and Indian equity markets have corrected by around 10 percent.
Also, while market returns may be modest, the breadth will continue to improve as the domestic recovery gathers momentum, thus providing opportunities for active funds to generate alpha.
In summary, we can look at the markets in two parts – firstly, on a short-term basis, correction should be looked at as an opportunity to add equity exposure but should be phased out over the next few months as the markets adjust to the policy change globally.