From the pandemic shocks to state polls to global trends, a raft of sentiment drivers are expected to steer the Indian stock market in 2022 after a historic year of massive investor returns and milestones.
The Union Budget, which will be closely watched for further reform moves, and quarterly earnings of corporates will be among the developments on investors' radar amid global central banks moving towards tighter interest regime in the wake of inflationary pressures.
The year 2021 was rewarding in a big way for equity investors.
The 30-share benchmark Sensex soared past the momentous 50,000 and 60,000 levels this year after the pandemic-triggered crash in March 2020.
Going into the New Year, the strong momentum on the IPO front is likely to continue, with the listing of state-owned LIC and many other companies in the pipeline.
Till December 29 this year, the Sensex has gained 10,055.16 points or 21.05 per cent and the index climbed to its all-time high of 62,245.43 points on October 19.
"Strong earnings recovery will be the topmost thing that will drive the market rally and consumption may see further momentum across different verticals after almost two years of down cycle.
"The government may also try to further push growth and consumption momentum in the upcoming Budget...," Sunil Nyati, managing director of Swastika Investmart Ltd, said.
Another key aspect in the domestic stock market now is the increasing participation of retail investors, which has also resulted in a scenario where there is no over dependence on foreign portfolio investments.
"About the levels for Sensex and Nifty, on a conservative note, Sensex can test the level of 71,000 and Nifty can hit the mark of 21,000 by end of 2022.
"On the downside, 53,500/51,500 and 16,000/15,500 are strong support levels," Nyati said.
Siddhartha Khemka, head-retail research at Motilal Oswal Financial Services Ltd, said global factors like US Fed's taper announcement and interest rate movement along with risk from the Omicron variant are likely to drive market direction next year.
"On the domestic front, the Union Budget, five state elections along with RBI's policy decision in response to Fed's interest rate decisions would dictate the direction of the market," he pointed out.
Analysts noted that oil prices, bond yields, foreign institutional investors' investment patterns and US dollar index movements would also impact markets.
On the risk factors, Nyati flagged pandemic uncertainties and rising inflation.
"Otherwise, there are no major worries visible."
Markets underwent some correction towards the end of the year as the BSE benchmark declined over 7 per cent from a record high in October amid high valuations and Omicron scare.
Therefore, the near-term market trend will depend a lot on the potential risks from the Omicron variant.
According to analysts, 2021 has been a great year for investors where the benchmarks witnessed return of around 21 per cent but the real wealth was created in the broader market.
Geojit Financial Services' Head of Research Vinod Nair said the positive drivers are strong economic revival, leading to high corporate earnings growth and benefits of reforms.
"We expect a rise in interest rates which will make the financial market profitable with an increase in credit growth," Nair said.
Further, he noted that the future themes of India on green energy, ethanol, new generation business, technology, manufacturing (production-linked incentives) and online-based companies will help the equity market to perform.
In a recent note, Motilal Oswal Broking and Distribution said that going ahead, "we remain optimistic and expect Nifty to deliver around 12-15 per cent returns in 2022, supported by continuation of economic recovery and strong earnings growth".
Sectors such as IT, telecom, capital goods, cement and real estate are expected to do well in 2022.
While banking and auto that have underperformed the market so far – have the potential to turn out the dark horse in 2022, it said.
"Currently, we are in a correction mode, but within the long bull rally.
"The near term trend may be muted and volatility may stay.
"However, we presume to be in the last phase of correction and the possibility of a further deep correction is low.
"We expect the market trend to improve in the latter part of the year," Nair said.
According to Motilal Oswal Broking and Distribution, while the market trend might be volatile in the near term on account of potential risk from the Omicron variant and fragile global cues, in the long run, strong earnings delivery along with positive macroeconomic data would hold the key to drive markets upwards.
On the wishlist for Budget, Nyati said markets would want a Budget that is reformist and pro-growth as well as they would like more clarity on the pace of the government's asset monetisation and divestment programmes.