MUMBAI : After a bruising period of volatility, investors expect markets to steer into calmer waters in the weeks ahead as the initial panic about the Omicron strain subsided, and bulls welcomed the Reserve Bank’s cautious stance on unwinding the pandemic-era easy-money policies.

Foreign institutional investors (FIIs) are, however, waiting for the outcome of the US Federal Reserve meeting scheduled next week, before committing more funds to emerging markets. However, events like the “taper tantrum", the market turmoil that erupted in 2013 when the Fed surprised investors by signalling it would unwind its bond-buying programme, appear unlikely.

Brokerage Credit Suisse expects India’s economic growth momentum to continue well into 2022, though the pace could moderate if energy prices remain high.

Neelkanth Mishra, co-head of equity strategy, Asia Pacific and India equity strategist at Credit Suisse, estimates earnings to see an upgrade of 5% in FY24. “Nifty earnings have been recovering from nearly a decade-long lull, where they grew just 4 percent between FY12 and FY19. A 15% growth is forecast between FY19 and FY24, which may see further upgrades. While Nifty earnings are only weakly correlated with the domestic economy, a substantial GDP upgrade should help offset risks. In our view, a 5% upgrade to FY24 Nifty earnings per share (EPS) is possible," he said.

However, given the rise in India’s price-to-earnings (P/E) multiples, Credit Suisse’s global equities strategy team has downgraded India to ‘small overweight’ for 2022 from its ‘strong overweight’ recommendation in February.

The key risks to economic growth and earnings upgrades are inflation, monetary policy changes and renewed supply disruptions because of the pandemic.

Next week, the US Federal Reserve will meet to decide the timeline of bond purchase tapering. But, according to Bloomberg, the taper isn’t all that will be on the agenda at next week’s meeting. Fed officials may also signal a faster and larger tightening of monetary policy over the next three years—to the extent markets haven’t anticipated.

Any interest rate action by the US central bank may hit the flow of foreign liquidity into India. FIIs have sold Indian shares worth $802 million in December so far, being net buyers of $4.73 billion equities in this year. Domestic institutional investors have, however, been buyers. They invested rs8,190.02 crore in Indian shares in December and pumped Rs30,522.02 crore in 2021 so far.

According to Nomura, the emergence of the Omicron variant has increased uncertainty, but Asia’s bumpy upcycle is likely to extend into the first half of 2022, supported by easing supply bottlenecks. However, it sees macro risks in India and Indonesia emerge next year, including lower vaccination rates and a balance of payments deficit.

“Higher CPI (retail) inflation will trigger faster policy normalization (100 basis points) even as scarring effects weigh on growth, starting from mid-2022," it said in a note on 8 December.

Experts said RBI may shift its accommodative stance if the covid risk subsides.

“Volatile commodity prices, persisting global supply disruptions, new mutations of the virus and financial market volatility pose downside risks to the outlook. The forecasts are in line with our expectations, but we will monitor the evolving situation with respect to the new covid variant," said Tanvee Gupta Jain, chief India economist, UBS Securities India.