Over the past year, equity markets have remained volatile both in India and globally. Due to quantitative tightening and rate increases to combat persistent inflation, global central banks appear to be controlling the market once more. Despite these challenges and a volatile external environment, there is a positive: India is enjoying a stable economy. India has been a standout among major markets, outperforming almost all emerging markets on a one-year or five-year basis by a significant margin. As a result, the correction in Indian markets has been relatively well-contained, owing to which Indian equity valuations are still elevated when compared to their long-term average and global peers. The Indian Central Bank, Indian Government and Corporates, all have handled the situation very well so far. Despite that it is prudent, to be conscious of the risks since market valuations are not cheap.
Today the world is much more interconnected than before and if there are problems that emerge in the world, the ride for equity investors in India cannot be that smooth either. It is our belief when US Fed declares that they are done with tightening, it would be a turning point for equities to emerge as a great asset class. We don’t know when that happens and until then we expect markets to remain volatile.
We think that India won’t be significantly affected even if the developed world goes through a recession. In fact, a developed world recession could significantly reduce some of India’s challenges, including high oil prices, concerns over current account deficit, and inflation. While equity markets may correct, we should not be overly worried because India remains one of the most structural markets in the world. Additionally, there is a potential element of geopolitical uncertainty. Since the Russia-Ukraine conflict, Europe and Asia too has witnessed geopolitical challenges. The market thus far has not factored in any such development. Therefore, we have to be watchful of how geopolitical developments unfold.
As an individual investor, it is important to pay attention to the three factors listed below:
1. Invest in Debt Mutual Funds; has become very attractive
Given the higher yields across duration, one asset class—debt—that hitherto has been unpopular (for the last 18-20 months) is looking attractive again. We expect repo rate hikes in the upcoming meetings, due to high consumer prices, a challenging global economy and inflation that is persisting above the RBI’s comfort level. Therefore, going forward, higher accrual schemes and dynamic duration schemes are recommended. We believe one type of debt that is likely to outperform is floating-rate bonds (FRBs). Investors should be mindful that debt mutual funds have a very important role to play in a portfolio and should not be ignored.
2. Benefit from Solution oriented offerings that mutual funds offer
We anticipate market volatility to persist till the time the US Fed remains committed to using all available tools to combat inflation. Hence, investors should exercise caution, especially in India. Over the coming year, investors should ideally invest through SIPs with a time horizon of three to five years.
From an equity investment perspective, for lump sum investment, investors can consider asset allocation strategies such as the balanced advantage or the multi-asset category. One can also consider features such as Booster SIP, Booster STP, Freedom SIP or Freedom SWP to achieve various financial goals in a planned, disciplined and systematic manner.
3. Invest in Gold & Silver ETFs / FoFs
A diversified portfolio across asset classes will ensure any concentration risk stands mitigated. Given the uncertainty, commodities such as gold and silver present an interesting investment case. They serve as a hedge not only against inflation, but also against currency depreciation. Investors can consider investing via ETFs in this space. For those without a demat account, a gold or silver fund of funds is an investment option.
Disclaimer
Views expressed above are the author’s own.
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