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In the last 27 years, Nifty has never delivered great returns in a given financial year (FY), after it gave over 70% return in the preceding FY. Sample this: In FY94 markets delivered 78% returns while the following year i.e. FY95 it lost over 15%. In FY04 it gave over 81% whereas in FY05 the returns were around 14%. Likewise, in FY2011 markets gave just 11% compared to over 73% returns in FY10. Going by the history, with investors garnering almost 71% returns in FY21, returns for FY22 could be capped.

This trend is noticeable from the fact that the first 20 days of FY22 have been volatile due rising COVID-19 infections that have crippled India’s healthcare system. March 10, 2021, when India recorded over 20,000-fresh coronavirus cases marked the beginning of second-wave of the infections. Since then, Nifty tanked over 5.5% wiping off over Rs 7.5 lakh crore investors’ wealth.

Siddhartha Khemka, VP – Head of Research (Retail) at Motilal Oswal Financial Services is of the opinion that markets can deliver 15-20% returns in FY22. “However, markets can correct 5-7% from the current levels though the severity of the second wave will determine the right bottom for Nifty. But the market will start reacting positively in advance the moment we see peeking out in the number of cases the market will start reacting positively,” said Khemka.

The pain in the broader market is much less compared to benchmark equity indices as BSE Midcap lost over 4.5% whereas BSE Smallcap slipped around 2.4% since the beginning of the second-wave.

The mid & small-cap companies will continue their outperformance once the second wave normalizes. “In an environment where economic growth picks up generally the smaller or midsized companies tend to do better. Investors can look at accumulating stocks like Gland Pharma, L&T Technology Services, Orient Electric and SAIL,” added Khemka.

But not all is doomy in the markets, despite rising COVID-19 cases, tighter localized lockdowns Nifty Metal index has rallied over 13% since March 10, 2021, on the back of rising prices and higher demand. Khemka is positive on the metal sector led by strong global demand and supply-side constrain from China.

“You will see a huge demand for infrastructure-related commodities global commodities because of the stimulus, increased spending by various governments to stimulate the economy. Fully integrated companies like Nalco, Hindalco, Tata Steel, and JSW Steel will benefit from the entire value chain,” told Khemka.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)