 "How to cushion current market volatility? Motilal Oswal has the solution")
The aftermath of India's Lok Sabha Elections 2024 has left the nation with a political landscape reminiscent of epic dramas like "Game of Thrones," according to the latest report by brokerage Motilal Oswal Private Wealth (MOPW). Despite the BJP falling short of a majority on its own for the third consecutive term, it retained its position as the largest party, securing the highest vote share. This outcome has eased concerns of significant policy shifts, ensuring continuity in the country's political direction.
Dubbed the "Year of Allrounder" by MOPW, the report advocates for a multi-asset investment approach amidst global and domestic economic uncertainties. Over the past three years, earnings across various market indices have shown robust growth, with a promising outlook for future earnings. However, given the recent momentum-driven themes and elevated valuations, MOPW advises a cautious approach with staggered investment strategies.
The equity market outlook remains positive, supported by corporate deleveraging, an uptick in the Capex cycle, and expected steady profit growth in the coming years. Despite these favorable indicators, MOPW recommends a balanced and resilient strategy in light of current uncertainties. Investors are advised to adjust their equity allocations based on their risk profiles, with a suggested staggered investment period of 3 to 6 months for large and multi-cap strategies, and 6 to 12 months for mid and small-cap strategies.
"The most optimum lumpsum deployment strategy could be through Multi-Asset & Balanced Advantage category of funds taking exposure across asset classes. For fixed income , we reiterate our view that core fixed income allocation can remain tilted towards duration through active and passive strategies," noted the brokerage.
Equity Portfolio Strategy, as per Motilal Oswal
•Equity market outlook continues to remain positive based on deleveraging of Corporate Balance Sheets, uptick in Capex cycle and an expected steady trend in profit growth over the next few years.
•However, in the current uncertainties, it is advisable to tread with caution by adopting a strategy which is balanced and resilient in turbulent times.
•Based on their risk profile, investors having the appropriate level of Equity allocation can continue to remain invested
•If Equity allocation is lower than desired levels, investors can increase allocation by implementing a staggered investment strategy over 3 to 6 months for large & multi cap strategies, and 6 to 12 months for select mid & small-cap strategies.
•The most optimum lumpsum deployment strategy could be through Multi-Asset & Balanced Advantage category of funds taking exposure across asset classes in the current scenario with accelerated deployment in equity in the event of a meaningful sharp correction.
Fixed Income Portfolio Strategy
In fixed income, MOPW maintains a duration bias strategy to capitalize on anticipated yield softening over the next 1-2 years. They recommend allocating 65% to 70% of the portfolio to actively and passively managed debt strategies, focusing on duration and accrual as per evolving market conditions. Additionally, conservative multi-asset funds and equity savings funds are proposed to generate higher returns with moderate volatility.
65% - 70% of the portfolio can be invested in combination of -:
- Actively & Passively managed debt strategies to capitalize on duration and accrual as per the evolving fixed income scenario
- Equity Savings funds/Conservative multi asset funds which aim to generate enhanced returns than traditional fixed income with moderate volatility through a combination of equities, arbitrage, fixed income, commodities, REITs/InvITs
- To improve the overall portfolio yield, 30% – 35% of the overall fixed income portfolio can be allocated to select high yield NCDs, Private Credit strategies & REITs/InvITs.
Gold Outlook
The report highlights geopolitical tensions and central bank buying as key drivers contributing to the recent rally in gold prices. However, the delay in Federal Reserve rate cuts could temper expectations for a sharp rally. Despite these factors, MOPW maintains a bullish outlook on gold, targeting prices between $2,600 to $2,650 by year-end.