In the equity market, investors have enjoyed the best start to the year since 2017 and made money across the market capitalisation ladder.
The second half of the year is expected to be much more challenging as cracks start to appear in the global ‘reflation trade’. The spread of the Delta variant of Covid-19 is already forcing investors to doubt their growth expectations for the global economy.
At the same time, more and more investors are becoming concerned that global inflation is here to stay despite the views to the contrary from the central bankers. Concerns around growth and inflation are manifesting at a time when valuations in domestic and global equities are at their record highs, which is adding to the sense of vulnerability of investors.
In this backdrop, we spoke to some of the biggest asset managers in India on how they will go about deploying a hypothetical sum of Rs 10 lakh in today’s investment environment.
Nikhil Kamath, Co-founder, True Beacon: Given the current risk-reward conditions, a balanced allocation of 15 per cent to commodities, 25 per cent to debt, and 60 per cent to equities will result in a stable portfolio. Commodities bring down the correlation of the entire portfolio and add flavour to the entire portfolio in contrast to a more structured and consolidated cycles of equity and debt market.
Sectors like IT, consumer goods and pharma produced resilient earnings even through lockdowns. So, a steady run-up can be expected in these sectors. Bonds with 3–5-year duration would be a good idea as interest rates are at all time low, and RBI might not change the rates in the coming few months.
Anand Shah, Head – PMS and AIF Investments, ICICI Prudential AMC: Today, Indian equity valuations are no longer cheap and the days of easy money are behind us. The current market condition is optimal for an equity investor with a buy and hold approach. There are opportunities across large, mid and small cap names, especially in pockets like telecom, cement, real estate.
We are selectively positive on real estate because over the past five years, prices of residential properties have been stagnant while wages and the purchasing power of the individual households have improved. All of this augurs well for residential real estate, especially in a work-from-home environment.
Cement is another space we are positive on as it stands to gain both from real estate revival and from increase in infrastructure spending which is currently playing out. Another theme we are positive on is the resurgence of manufacturing.
Roopali Prabhu, Chief Investment Officer, Sanctum Wealth Management: We have designed the below portfolio based on the current circumstances and assuming the investor has a moderate risk profile with a 5-year investment horizon and no liquidity needs.
We believe the interest rate cycle has bottomed and rates could be headed higher over the next couple of years. Our objective, therefore, was to reduce volatility and land at a return as close to inflation as possible.
We believe that in the long run, most largecap mutual funds will find it difficult to outperform benchmark indices as their investment universe is now tightly defined. There is barely any informational advantage in the large-cap universe and hence we suggest investing in index ETFs.
While sovereign gold bonds don’t fit into the five-year horizon (maturity is 8 years) but they are safe instruments as well as pay some interest and hence high on our list. Alternatively, gold index funds also serve the purpose well.
Chakri Lokapriya, Managing Director, TCG Asset Management: First, roughly, if a person is 18 years then 80-85 per cent portfolio should be in equity, and if he is 40 years then 60-65 per cent in equity. Second, have two years of annual income in fixed income to meet unexpected expenses.
Within equity one ought to have exposure to export sectors, that is IT, pharma, chemical, textiles, and auto ancillary of about 35 per cent of portfolio. The next 25-30 per cent should be in financial stocks since capital is needed by everyone. The materials sectors such as cement and metals should have about 25 per cent exposure, and 15-20 per cent on consumer sectors such as home appliances, footwear, multiplexes, hotels, internet, and restaurants.
Investment of about 15-35 per cent of total amount should be in fixed income. We believe that interest rates are unlikely to rise for the near future given the pandemic uncertainty and the focus of RBI on getting back growth. Given the pandemic uncertainty, a shorter tenure duration of 1-2 year would protect from unexpected increase in interest rate.
Kanika Agarrwal, Co-founder and CIO, Upside AI: My long-term outlook is always optimistic. Therefore long-term, I would always lean more towards equities to solve for “what could go right.” Therefore, if I have Rs. 10 lakh to spare, I would invest it in equities. I would split the money across market caps and geographies. No single stock should be more than 10 per cent of my portfolio at cost, and no single industry should be more than 35 per cent. If I were to allocate to bonds, I would look for perpetual bonds of blue chip companies like HDFC and SBI which are almost quasi equity investments.
