Top 4 Investment Themes for 2022

2021 was an eventful year for investors.

As low-interest rates made traditional investment avenues, such as fixed deposits and debt instruments, less attractive, investors looked at other avenues such as the stock market to earn inflation-proof returns.

And earn, they did.

Despite the pandemic, stocks rallied over 100%. Some even rallied more.

Governments around the world pumped liquidity into the system to help their struggling economies. This liquidity found its way into the stock market.

Would investors encounter the same kind of luck in 2022?

Unlikely.

With the Fed easing its bond purchases any time this month, the liquidity from the market could start disappearing soon. FIIs have already started booking profits.

So, what should you do, dear investor?

Where should you put your money in 2022?

Here are four investment themes you could consider.

#1 Technology led growth stocks

Technology-led stocks dominated the market in 2021 as the pandemic caused billions of people to go under lockdown and meet virtually instead.

Cloud computing proved to be the clear winner. It quickly became the primary infrastructure for millions of people having to work and learn from home.

The surge in demand for cloud software led to big returns, and large IT players such as Infosys and TCS cashed in on the newfound demand.

Other technologies that made the shift possible were e-commerce, digital payments, artificial intelligence, 5G wireless and videoconferencing.

Also, part of the trend was the Internet of Things, a technology used to create smart digital devices. The technology helped create better experiences for people as they adjusted to a new reality.

While lockdown restrictions have been eased and an economic recovery is on the way, these trends are expected to continue in the year 2022 as well.

The adoption of new technology will not be limited to IT companies alone but will also include companies that have made the decision to adapt and innovate with the times.

To take advantage of this technology-led growth you could consider investing in companies that have transformed their business using technology and are poised for growth in the coming years.

This could also include technology startups. A host of them such as Ola, Byju's and Delhivery are slated to go public in 2022.

#2 Gold to hedge inflation

Among the many ways in which Covid-19 affected the economy, the most tangible outcome was the impact on inflation.

Even before the pandemic struck, consumer inflation was running high. India was in a tight situation with inflation higher than the mandate. Economic growth also fell to 3%, a rare low.

Then the pandemic hit and supply pressures were so strong that inflation remained high across the spectrum.

While the Indian economy is now gradually recovering after being hit by two Covid-19 waves, inflationary pressures still continue.

Large companies are facing inflationary pressures and are passing on the increase in prices thereby causing a strain on household budgets.

This trend could continue in 2022 as well.

Average inflation over the next five years is expected to be slightly higher than pre-Covid levels.

To hedge your bets against inflation, you could invest in gold.

Gold will help serve not only as a hedge but also as a strong strategic component in your portfolio for its returns.

The precious metal has delivered more than 54,000% returns to investors in the last 75 years.

Its price post-independence has jumped from Rs 88.6 per 10 gm to around Rs 48,000 per 10 gm in the retail bullion market.

This demonstrates that the strong returns that gold has given investors since 1971 is not unusual.

To know more about gold, you can check out our article on how to invest in gold here: How to Invest in Gold?

#3 REITs and InvITs to cash in on the capex boom

In 2022, conversations regarding capex are expected to take centre stage once again as utilizations start going up.

In fact, many companies have already announced plans to increase capacities.

An outlay of over US$ 15 bn has been announced by top steel companies while expansion projects worth US$ 5 bn have been announced by leading cement companies.

Oil & gas companies have also announced over US$ 15 bn towards new projects this year. Of this 20% has already been spent.

Why are they doing this now?

India's capex cycle now has the support of the right government policies (PLI).

Concessional corporate tax, a commodity supercycle, and low-interest rates are also coming together to help with the demand for investment.

Apart from this, the demand for real estate is also picking up. Structural growth in affordable housing over the next few quarters is likely to cement this position even further.

In such an environment, investing in Infrastructure Investment Trust (InvITs) and Real Estate Investment Trusts (REITs) seems like a good bet.

REITs and InvITs are innovative vehicles that allow developers to monetise revenue-generating assets while enabling investors or unitholders to invest in these assets without actually owning them.

They are modelled after mutual funds and are traded over the stock exchanges.

InvITs are expected to gather steam in 2022 as PSUs and other entities look to monetize their assets to start a fresh capex cycle.

After power, the country's oil PSUs are looking to float an InvIT. For the government, building gas pipeline infrastructure through this route is a key priority.

There have also been news reports of developers evaluating REIT for their commercial real estate portfolio.

Currently, there are three publicly-listed InvITs in India - India Grid Trust, IRB InvIT and PowerGrid InvIT.

There are also three REITs listed on the exchanges, namely, Embassy Office Parks REIT, Mindspace Business Parks REIT, and Brookfield India Real Estate Trust.

#4 Low-cost Index funds to ride a volatile market cycle

The stock market could be extremely volatile in 2022 as the Fed prepares to make a policy pivot.

At a recent meeting, it signalled that it plans to end its US$ 120 bn monthly bond-buying program by the middle of next year with a monthly tapering.

Benchmark indices have already seen volatility in the last few weeks. This could well continue into the next year.

To tackle this, conservative investors could take the low volatility route to invest in stocks by investing in low-cost index funds.

As the name suggests, these funds typically invest in stocks that are a part of an index such as Nifty 50, Sensex, etc.

If a fund is benchmarked to the BSE Sensex, then its performance over a period of time will match with the performance of Sensex.

This results in automatic diversification, which reduces your overall risk. This also results in lower costs as there is no active management required.

Conclusion

Nothing beats starting the new year with a good investment portfolio.

By being prepared at the beginning of the year, you give yourself a better chance at building wealth in the long term. Moreover, you benefit from the power of compounding.

Your best bet to make the most of your investments is to be thorough with your research and make informed decisions grounded in facts as opposed to instinct or emotions.

Choose a suitable asset allocation. When you invest in a company, look at it from a 360-degree perspective to see if it is a worthwhile investment.

It also pays to remember that assets linked to the financial markets may fluctuate in value. So, take adequate measures that will help you avoid the stress related to timing the market.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.