Motilal Oswal recommends THESE strategies for equity, fixed-income and gold

Motilal Oswal Private Wealth (MOPW) recently highlighted the domestic equity market's remarkable resilience amid unfavourable global events. According to its analysis, corporate earnings and strong domestic institutional investor (DII) inflows have been major drivers of stock market performance over the last three years. Since CY21, DIIs have contributed nearly $90 billion in net inflows, a figure almost ten times greater than the inflows from foreign institutional investors (FIIs) during the same period. MOPW emphasised that the structural megatrends of retail participation and the financialization of savings will likely continue to support domestic equities over the coming years.

Equity Strategy

Regarding valuations, MOPW noted that large-cap stocks remain fairly valued, while mid- and small-cap stocks, in the aggregate, are significantly more expensive. Despite the higher valuations, earnings growth expectations for mid- and small-cap stocks are projected to outpace large-caps over the next few years. Sector rotation is expected to continue, with MOPW advising a staggered investment approach. It recommended spreading investments over three to six months for large-cap and multi-cap strategies, while mid- and small-cap should be staggered over six to twelve months.

MOPW maintained a positive equity outlook due to strong economic growth, capital expenditures, and anticipated rate cuts. It suggested that if equity allocation is below desired levels, investors should consider increasing their exposure using a staggered investment strategy, with accelerated deployment in case of a meaningful correction.

Indian Economy

MOPW’s September 2024 Alpha Strategist report reviewed the phases the Indian economy has undergone in the past decade. In FY13, India was classified as a fragile economy with low GDP growth of 5.5 per cent, high inflation at 10 per cent, and a twin deficit of 10 per cent of GDP. However, by FY17, the economy recovered and entered an expansion phase, with 8 per cent GDP growth, 5 per cent inflation, and a twin deficit reduced to 4 per cent. After a slowdown post the NBFC crisis in 2018-19 and the pandemic in FY21, the economy has now entered a "Goldilocks phase" with stable GDP growth at 7 per cent, moderate inflation at 4.5 per cent, and a well-managed twin deficit at 6 per cent of GDP.

India's foreign exchange reserves have steadily grown, reaching USD 680 billion. Additionally, a well-managed current account has ensured stability for the Indian Rupee, which has remained within a narrow trading range.

Fixed income portfolio Strategy

For fixed-income portfolios, MOPW reiterated the importance of maintaining a duration bias to capitalize on the potential softening of yields in the next one to two years. They recommended that 30 per cent of a fixed-income portfolio be invested in actively managed duration funds and long-term government securities to benefit from accrual income and potential mark-to-market gains.

MOPW also advised allocating 30-35 per cent of portfolios to multi-asset allocation funds and equity savings funds, which aim to generate higher returns than traditional fixed-income investments with moderate volatility. To enhance portfolio yield, MOPW suggested allocating 30-35 per cent of fixed-income portfolios to private credit strategies, REITs/InvITs, and select high-yield NCDs. For liquidity management, investments could be directed towards floating rate and arbitrage funds.

Silver and Gold Outlook & Strategies

MOPW noted that silver has experienced a demand-supply deficit over the past three years, which has supported its price. Industrial demand for silver has surged since 2020, reaching record highs. The outlook for silver remains positive due to continued industrial demand, increased manufacturing activity in China, and growth in green technology.

The market for gold in August 2024 was shaped by geopolitical uncertainties, economic data, and changing monetary policies. Despite a rise in gold prices, volatility persisted. MOPW’s view on gold remained positive, advising strategic portfolio allocation, particularly during times of heightened market volatility. It recommended monitoring Federal Reserve rate decisions and geopolitical developments, as these factors are expected to influence gold prices further.

MOPW's analysis suggested that India's strong economic fundamentals, growing institutional investor base, and robust corporate earnings are likely to keep domestic equities resilient in the years ahead. MOPW's comprehensive portfolio strategies across equity, fixed income, and precious metals, such as silver and gold, offered a balanced approach for investors navigating current market conditions.

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