Equities enjoyed a record-busting 2021 as investors dusted off concerns surrounding the coronavirus and put their chips on a turnaround in the economy, earnings improvement by corporate India and progress in vaccination coverage.

Though the Sensex ended with gains of 22 per cent and the Nifty 24 per cent, experts said the immediate ride could be a volatile one with relatively lower returns.

On the last trading session of 2021, the 30-share Sensex closed at 58253.82 — a gain of 459.90 points or 0.80 per cent — on strong buying in auto, banking and heavyweights such as Reliance Industries. On the NSE, the broader Nifty settled 150.10 points or 0.87 per cent higher at 17354.05.

During the calendar year, the Sensex gained 10502.49 points or 21.99 per cent, while the Nifty rose 3372.3 points or 24.11 per cent — their best since 2017.

However, concerns over expensive valuations, rising crude oil prices, firm inflation and a quicker policy normalisation by central banks have played spoilsport resulting in the benchmark Sensex retreating from its record intra-day high of 62245.43 hit on October 19.

Some of the key sectors that outperformed the benchmarks during 2021 included IT, metals, consumer durables and realty apart from the mid-cap and small-cap indices. Private sector banks, auto, FMCG and healthcare had a subdued year.

Market experts warned investors will have to face choppy waters in 2022 marked by intermittent corrections as the rising number of Omicron cases could see states imposing restrictions on mobility. Besides, global central banks may raise interest rates that could hurt portfolio inflows into emerging economies.

“The spike in the number of Covid-19 cases in the country leading to a possible third wave is certainly a headwind that the markets will have to face in the immediate future. Then we have the likelihood of some of the global central banks tightening their monetary policy coupled to higher inflation which could see money flowing away from equities,” an analyst with a foreign brokerage said

“Though stocks will deliver positive returns in 2022, it will be comparatively less than what was seen in 2021,’’ an analyst with a foreign brokerage said.

But there are others who are of the view that since India is in for a strong economic rebound, equities will continue to surprise on the positive side.

“2021 has been a year of recovery, rehabilitation, and establishing a base for future growth. 2022 will be a little more volatile but will still be very good for equity investors in India. 2022 is very likely to be another year of good double-digit returns and continued wealth creation,’’ said Naveen Kulkarni, chief investment officer, Axis Securities. Autos, banks and capital goods will be the sectors to watch out for in the new year, Kulkarni said.

Santosh Kumar Singh, head of research, Motilal Oswal Asset Management Company, said the new year will be range-bound for stocks since the Indian economy is showing strength on one hand and a uptrend in corporate earning cycle on the other. Singh feels financials, particularly large banks, pharmaceuticals and real estate to be well placed during 2022.

ICICI Securities on the other hand is betting on sectors such as IT, capital goods, auto ancillaries (EV exposure), retail and real estate. The brokerage added that while mid-caps, small-caps gave stellar returns in 2021, this is expected to continue in the next calendar year.

“Going forward, innovative themes present in the midcap & small cap space (like speciality steel chemicals, home textiles, CRAMS), superior earning potential and reasonable valuations make us believe that more upsides are in store for investors,’’ it said.

Rupee slithers

The positive trend in the equity markets also had its impact on the Indian rupee which rose 13 paise to close at 74.29 against the dollar.

However, the domestic unit closed 2021 with overall losses of 122 paise or 1.67 per cent because of a rise in crude oil prices and firming up of US bond yields and expectations of a rate hike by the US Federal Reserve. The rupee had closed at 73.07 on December 31, 2020.