Equities, Gold, FDs: Where should you invest as global headwinds rise?

With the domestic economy looking ripe to shine despite a possible global recession, analysts recommend investors look at investing a bulk of their investable surplus in equities

Investors have burned their hands across most asset classes so far in calendar year 2022 (CY22). The sharp reversal in the interest rate regime by global central banks, coupled with multi-year high inflation, has dented returns from equities, bonds (government securities), gold, and cryptocurrencies alike.

Fears that advanced economies may see a ‘hard landing’ because of a sharper-than-anticipated rate hike cycle; energy crisis in Europe; and faltering economic growth in China has dented the overall returns for investors.

As the geo-political situation remains tense, with Russia-Ukraine conflict intensifying, and the US-China locking horns over Taiwan, along with persistent macro-economic headwinds, the investment outlook for the remaining part of CY22 remains challenging.

Against this backdrop, which asset class remains the most attractive at this point in time? Where should an investor, with a surplus investable amount, put their money?

Despite headwinds, equities remain analysts’ favourite choice among different asset classes. With the domestic economy looking ripe to shine despite a possible global recession, analysts say investors should look at investing a bulk of their investible money in stocks.

G Chokkalingam, founder and chief investment officer (CIO) at Equinomics Research, for instance, recommends investors allocate 40-50 per cent their money to equities, 30 per cent to fixed income options, and the remaining 20 per cent in gold or real estate

"Investors shouldn't panic and move away from equities as the Indian economy may still benefit despite a global slowdown. That’s because oil prices, which remains India’s biggest worry, will correct amid a demand slump and will support the economy going forward. Equities (mid-and small-caps) should deliver 15 - 25 per cent return over the next one year,” he said.

Indian equities have proven to be the safest best so far in calendar year 2022. The S&P BSE Sensex, and the Nifty50 indices have slipped around 2 per cent year-to-date (YTD) as against 22.5 per cent fall in the S&P 500 index during this period. The MSCI Emerging market (MSCI EM) index slipped 26.5 per cent, as per Bloomberg data.

Risk-less assets like 10-year government bonds, meanwhile, added around 91 basis points, while safe-haven gold, and silver declined 10.4 and 20 per cent, respectively. The worst sell-off was seen in cryptocurrencies where Bitcoin plunged 59 per cent, so far, this year.

Post hawkish Fed, analysts at Phillip Capital expect the rupee to weaken, global growth to be severely dented as aggressive (monetary) tightening takes place across nations, which they believe will adversely impact global earnings and equities. Yet, they have reposed their faith in equities, espeically India, and expect the frontline indices to move higher over the next one year.

"For India, while we can outperform, we cannot fly against the wind. Structurally, India is best placed in the long-term but only at certain valuations. Considering below mentioned risks and valuations, we turned neutral in Nifty at 17,300-17,400. For March 2023 – September 2023, we continue to hold our long-held Nifty target at 18,000-19,000 levels," said Anjali Verma, research analyst at Phillip Capital.

Arpita Vinay, managing director and co-head of Centrum Wealth, too, suggests turning ‘overweight’ on equities in a calibrated manner. "The themes that we like are - domestic growth-oriented ideas; steady compounders with some consideration to valuation parameters; and the sector rotation/contemporary portfolio tilts. This can be done via mutual funds, and Portfolio Management Services (PMS)/Alternative Investment Funds (AIF) strategies," she says.