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The stock markets have delivered a whopping 70% return in FY21 despite the onslaught of the COVID-19 pandemic, but as we step into the new financial year, should investors expect the stellar run in markets to continue? What are the factors that will impact the markets and investment in equities in FY22?

Money9.com spoke to experts to understand how will investments in equities grow in FY22.

Covid-19

Most of the analysts point at an overhang on COVID-19 and the vaccination drive which is an important factor for investors to keep in mind as they invest in FY22.

US Bond Yields & Dollar Strength

Experts also believe that on the global front, one key factor that could act as a headwind to Indian equity markets is rising US yields and a strengthening dollar. Experts say that if the US yields and the dollar continue rising, we could see emerging markets, including India, underperforming the developed markets.

Corporate Earnings

On the domestic front, earnings will be a critical driver. Even though there may be high volatility in the markets but earnings growth will be key to track for investors.

Market Outlook

While the returns of FY21 may not replicate, most experts see high single-digit to double-digit returns being clocked in equities. Also, they believe markets to outperform other asset classes like real estate, fixed deposits, gold and even bonds.

Siddhartha Khemka, Head Retail Research at Motilal Oswal Financial Services said, “This is largely due to the fact that the economic revival is expected to continue in FY22 with the government’s focus on fiscal expansion and capex spending which would revive the long-anticipated private investment cycle. Even some of the sectoral reforms undertaken by the government would support its long-term vision. Despite the lockdowns in FY21, we expect Nifty Earnings growth to be steady in FY21. Further FY22 is likely to be strong growth year and also start of a multi-year earnings growth cycle”

Retail investors have been instrumental in pushing the benchmarks to new highs as they helped trigger an upswing in the mid-and small-cap indices during the year. The gains in mid-and small-caps have, in fact, been sharper with both the indices rallying over 100%.

Experts see retail participation to continue to be buoyant as equities may continue to outperform other asset classes.