What your porfolio should look like when markets are at a record high

Equity markets continued the uptrend in July as foreign institutional investors continued as net buyers, maintaining consistency in inflows since April 2023, while mutual funds continued their steady inflows. 

The markets ended positive for the fifth successive month in July 23, breaching the all time highs levels, and sentiments were boosted due to optimism about domestic growth, positive FPI inflows, and strong corporate earnings, according to ICICI Securities. FII’s were net buyers in equities to the extent of Rs 466 billion in July against Rs 471 billion in June, while mutual funds continued to be net buyers worth Rs 77 billion in July.

Apart from India, most of the major global equity markets also posted positive returns for the month of July

Realty & Pharma were the best performing sectors in July while FMCG and IT fared the worst.

"Indian markets are expected volatile over the short term and the future trajectory will remain guided by factors such as: 1) How fast interest rate hikes come to a halt globally 2) Damage to economic growth, more so in developed economies 3) Lag effect of a rise in interest rates on demand cycle & corporate EPS in India etc,' said the report.

In a volatile market, what should your investment strategy be?

ICICI Securities recommends the following: 

1. The allocation to equity can be made in a staggered manner over the next three to six months while correction in Nifty to 19000 levels can be used for making lumpsum investment.
2. Investors can also increase allocation through SIP or increase deployment in case of correction in markets and continue to allocate funds to multi/flexi cap funds focused on Blended investment (Mix of Value & Growth) style of investment and dynamic asset allocation funds
3. Also allocation towards mid & small caps can be increased and on thematic side. The brokerage is billish on PSUs and infrastructure. 

What should your portfolio look like

ICICI Securities reccomends allocating 50 per cent of your portfolio to large-cap funds. It has picked the following:

HDFC Flexi Cap Fund Flexi-Cap, Nippon India Multicap Fund Flexi, Kotak Equity Opportunities Fund Flexi-Cap,  ICICI Prudential Nifty 50 Index Fund Large Cap

Rationale: The large cap & diversified funds are essentially in-line with its market views to choose strong stock pickers with blended investment style preferably with a multi/flexi cap strategy

It recommends one shoudl allocate only 15 per cent of their portfolio to mid and small cap funds.

It has picked  SBI Magnum Midcap Fund and Franklin India Smaller Companies Fund in this space. 

ICICI Securities recommends exposure to mid & small cap funds to generate an alpha over the broader market. "Domestic consumption and manufacturing theme can be played by having exposure to mid & small caps."

For investors who are willing to go beyond just the mutual fund route, ICICI Securities recommends 20 percent allocation through Equity  Portfolio Manager route

. For example, the ICICI Pru Contra PMS Strategy follows ‘Contra’ style of investing which involves taking contrarian bets i.e. taking calls/exposure on stocks which are currently not in favour in the market but are expected to do well in the long run. The PM may also select stocks of companies in sectors where entry barriers are high, sectors is in consolidation or of companies in special situation. 

Other examples in the space cited by the brokerage include  I-Sec Ace Equity PMS Flexi: ACE Equity includes market leaders from across market caps and is an all-weather portfolio, as its components have a higher market share in their segments. The focus of this portfolio is on companies with strong balance sheets and management teams that have shown disciplined capital allocation

AAA India Opportunity Plan (IOP) PMS:Portfolio manager plans to build a portfolio of 40-60 companies which are market leaders with strong corporate governance and high growth potential with

investment horizon of 3-5 years.

In the thematic space, ICICI Securities recommends a 15 per cent allocation. Its top picks in this space are:

Tata Infrastructure Fund: Due expected domestic recovery in FY 23, allocation should be added to Metals, Capital Goods, Infrastructure, Cement and Engineering sector

Invesco India PSU Equity Fund: Tactical allocation towards PSU companies, as PSU's tend to outperform in run up to the elections based on historical trends. We have seen improvement in earnings growth and governance of PSU companies which can lead to further rerating of these companies. This fund has diversified allocation towards Defense, Shipping, Capital Goods.

Nippon India Banking & Financial Services Fund: Tactical allocation to leaders in BFSI due to improving trends in credit growth. Focused on lenders with healthy business growth, improving operational efficiency and steady asset quality.

Only MF route portfolio:

For investors who want to follow only the MF route, ICICI Securities recommends 60 percent allocation towards large-cap funds, 20 percent towards mid-and small cap and 20 percent towards thematic.

Equity Model Portfolio – Returns