Which sectoral indexes outpaced Sensex in 2021 and what is next year’s outlook?

Indian equities had a stellar run in 2021, with the benchmark BSE Sensex gaining 21% since January 1 and extending the rally from where it left in 2020. The NSE Nifty 50 has risen nearly 23%.

The gains were primarily driven by a surge in liquidity — both from domestic and foreign investors. Foreign portfolio investors (FPIs) remain net buyers of Indian equities to the tune of $3 billion this year.

The interest from domestic investors lent support to the market even as FPIs pulled the plug and booked profit in the last quarter.

India recorded a steep 65% rise in the number of domestic demat accounts in 2021 as the rally in equity markets attracted more participants. India now has over 80 million active demat accounts, as per data from the Securities and Exchange Board of India (SEBI).

Sure, Indian benchmark indices were the top performers worldwide, but there are sectoral indices that even outperformed the frontline stocks. Here’s a quick look at those indices.

Sectoral picture

Among the 17 major sectoral indices, the BSE Power index was the top performer in 2021 with gains of nearly 70%. 

JSW Energy was the top performer with year-to-date gains of 360%, while Tata Power (up 187%) and Adani Power (up 104%) also contributed to the sector’s outperformance.

“While the overall demand and power generation increased 10.7% and 10.2% year-on-year each in fiscal 2022, we expect power demand to rise 12% in FY22, led by the country’s improved economic activity,” said Anuj Upadhyay, analyst, HDFC Securities.

"With the CCEA approving the Rs 3.03 trillion reform-linked package, we can expect improved infrastructure, Capex from discoms over the next 3-4 years. This would, in our view, lower AT&C losses, nullify the ACS-ARR gap, and promote private participation in the discom space,” said Upadhyay.

Rising commodity prices also propelled a strong rally in metal, industrial and real estate stocks. The BSE Metal index is up 66% for the year so far this year with three trading sessions to go, while BSE Industrials and BSE Realty are up 63% and 55%, respectively.

Sectors like automobiles, healthcare, financials and fast-moving consumer goods underperformed the Sensex, with gains ranging from 9% to 17%.

Outlook for 2022

As India equities touched record-high valuations earlier this year, analysts maintain a cautious view on the markets with a rising interest rate scenario likely to have a negative impact on risk assets.

Analysts also foresee the markets to remain volatile and anticipate a rally in high beta and defensive stocks such as banks, financials, automobiles, and healthcare — all of whom have underperformed the Sensex in the last 12 months.

Jitendra Gohil, head of India equity research at Credit Suisse, expects the chemical and pharmaceutical active pharmaceutical ingredient (API) sector to be back in favour in 2022 after the recent correction.

“While we continue to avoid recommending highly valued companies, we believe certain companies and sectors offer valuation expansion potential. Ahead of the Union Budget 2022, we expect infrastructure, cement and industrial companies to do better, and given our expectation of higher GDP growth, domestic cyclicals such as private banks and large public sector banks are our preferred segments,” Gohil told clients in the 2022 outlook report.