BOTTOMLINE: 2022, a year of significant change

When the tide turns, it rocks many boats. It might be foolhardy to think that the world will reverse gears on quantitative easing without any repercussions. Pinch it will, how much and by when remains the big debate. To be sure, the US Federal Reserve has announced a tapering of its bond purchases and opened up the possibility of rate hikes in 2022. This does not necessarily signal a huge sucking out of liquidity in the near future. Jefferies’ Chris Wood recently opined: “A really hawkish Fed would clearly be extremely bearish for equities, particularly US equities given the valuations. But GREED & fear has a very hard time viewing the current mob as being ‘hawkish’ in any way, shape or form. Indeed GREED & fear agrees with Jefferies’ head of Microstrategy research Desh Peramunetilleke that the Fed is unlikely to be as aggressive as in 2018.”

So, there may not be big worrying moves immediately, also given the Omicron surge, but don’t bet on it. Big or small, swift or spaced out, the moves to tighten will eventually have an impact, especially since inflation is likely to emerge as a significant concern in 2022.

The big semiconductor supply pang of 2021 may well end in 2022. International Data Corporation (IDC) has forecast a balancing of demand-supply in 2022 and an oversupply situation in 2023.

In a note on the subject, David Kastner of Charles Schwab suggests that the rapid pace of capex could well lead to a reversal in the prices of chips, which are presently seeing a rising trend. “There is a risk that overinvestment is happening now, with massive spending planned around the world: An estimated $146 billion was plowed into semiconductor capital expenditures in 2021, up 50% from pre-pandemic 2019, according to technology market researcher Gartner Inc. And between Intel and TSMC, more than $200 billion in spending is planned—on top of potentially $52 billion by the U.S. government, $190 billion by the E.U., and $450 billion by South Korea,” says Kastner.

He adds that the growing IoT trend and the “smart” movement could well keep the demand for new generation chips buoyant going forward, especially with consumption in automobiles seen growing exponentially. However, about a sixth of capex is in “mature” chips, which could trigger a slump due to over-supply.

There have been a lot of funds raised via IPOs in 2021, with India alone seeing a record near Rs 1.2 lakh crore being mopped up. And while the pipeline remains strong with some promising debutants in the wings, a big question remains on the sustainability of the IPO frenzy. Already, about two-thirds of IPOs in the US are trading below their offer prices. A similar fate has been meted out to many of the local new listings, hurting confidence. And with the selling by foreign investors being unabated, so far, and the not so promising listings in the recent past, investors will likely become more discerning if not wean off IPOs altogether. So, 2022 could well spell the end of the IPO party. Also, do remember, an LIC IPO promises to suck out a fair bit of money, and that could cause a fair bit of churn too.

When the world’s biggest social media player rechristens itself, you sit up and take notice. Mark Zuckerberg has renamed his business built on the Facebook moniker, as Meta. If it was a generic name he was looking for, to reflect the span of business, it could have been anything more generic. The fact that he opted for Meta, seems to suggest where he thinks the future lies. The Metaverse clearly seems to be the future of social engagement, online interaction, commerce and much more. From the way things are shaping up, you may well be living the better, in more ways than one, part of your life through your Avataar in the Metaverse. Watch out for this new wave that could well sweep the world, powered by the likes of Meta, Apple, Sony and Google.

New age businesses may come up-front with competition from the fast evolving biggies of India Inc, like Tata and Reliance, as they roll-out new age initiatives like super apps and push forward with disruptive partnerships like those of Jio with Google and JioMart with WhatsApp. The entire e-commerce and e-services space is ripe for disruption, not just by such players but also by technology advancements like AR/VR (augmented reality / virtual reality). The muscle of traditional distribution and business strength combined with large cash reserves blended with new age technologies could well see an interesting contest play out between the conglomerates and the digital biggies in the Indian marketplace across segments like retail, healthcare, finance and entertainment.

In fact, the great fintech boom may gather pace, and yet get stymied as the banking behemoths turn smarter and more nimble, striking partnerships, acquiring capabilities and brushing aside competition.

Concerns over rising pollution will compel administrators to tread the lower emission path, so far as possible. And while the impact of some of these initiatives will likely remain limited, given the significant costs and feasibility of transition, breakthroughs in technology can disrupt the entire ecosystem. Also, consumer preferences can play a big role in driving change. A lot will depend on the success of some of the new energy initiatives and products in determining the pace of adoption.

That 2022 will not be like 2021 is a given. An environment of rising interest rates, inflation and resultant money flows and lingering COVID make it a complex environment to navigate. And this could call for some rebalancing of portfolios as the year progresses. Also within equities, it might help to position yourself for the future. 2022 could well spell the death knell for legacy businesses that fail to evolve and thrive in the new normal. So keep your eyes firmly on the road ahead. Forget the rearview mirror. Future is where the profit is.

Wish you a healthy and prosperous 2022!