Stock market news: Experts unveil THIS equity mutual fund, fixed income portfolio strategy

The Indian stock market continued its strong upward momentum on Monday, with both the benchmark indices — Sensex and Nifty 50 — rising over 1% each, driven by broad-based buying. This rally in domestic equities in the second half of March follows a phase of significant correction that began in October 2024.

Nifty 50 had declined by 13% from its peak due to persistent selling by foreign institutional investors (FIIs) and uncertainty arising from multiple factors, including the imposition of tariffs by the United States, China’s economic revival measures, and a strengthening U.S. dollar.

Additionally, subdued corporate earnings in Q3 failed to uplift market sentiment. However, Q3FY25 GDP data indicated early signs of economic recovery.

Market Outlook and Valuations

According to the March 2025 Alpha Strategist Report by Motilal Oswal Private Wealth (MOPW), greater clarity on these macroeconomic factors will emerge gradually. From a long-term perspective, India remains a stable and growing economy. MOPW also believes that recent government initiatives to boost consumption are expected to further support economic growth.

Following the recent market correction, the valuation of large-cap stocks (Nifty 50) has fallen below the 10-year average on a one-year forward price-to-earnings (PE) basis. Meanwhile, mid-cap and small-cap stocks continue to trade at a premium.

“While mid and small-cap indices are still trading at premium, pockets of opportunities are emerging there as well. Evaluation of the current scenario suggests that factors which might have caused this correction in Indian equities have either subsided or largely been factored in. US Yields have come off, dollar index has weakened, GoI spending is back on track, domestic liquidity conditions have eased and valuation have moderated from the peaks with earnings outlook being positive for the next 2 years,” said Ashish Shanker, MD & CEO - Motilal Oswal Wealth Limited.

From a long-term perspective, Shanker emphasized that India’s growth story remains intact, supported by favorable demographics, rapid digitalization, increased domestic savings allocations towards equities, improving exports, and continued government infrastructure spending.

“In such a scenario, with signs of economic recovery and improved margin of safety in terms of valuation, risk rewards look favorable from a long term perspective. Hence we believe that it’s an appropriate ‘Time to Act’,” Shanker said.

Equity Mutual Fund Strategy

Given the current market environment, MOPW advises investors to adopt a balanced and resilient investment strategy. Investors with appropriate equity exposure based on their risk profile are encouraged to remain invested.

For equity investments, MOPW recommends:

• Lump-sum investments in Hybrid, Large Cap, and Flexi Cap funds.
• A staggered investment approach over the next three months for Mid and Small Cap strategies.
• Utilizing any market corrections for aggressive capital deployment based on individual risk appetite and investment objectives.

Fixed Income Strategy

With evolving interest rate dynamics, MOPW believes that the duration play is in its final phase, and long-term yields are expected to remain elevated. As a result, it suggests exiting duration strategies entirely. Anticipated actions by the Reserve Bank of India (RBI) regarding rate cuts and liquidity measures are expected to lead to a steepening of the yield curve. Accordingly, MOPW recommends an Overweight stance on Accrual Strategies.

The firm proposes the following fixed-income portfolio allocation:

• 45% – 55% in Performing Credit & Private Credit Strategies, Infrastructure Investment Trusts (InvITs), and select Non-Convertible Debentures (NCDs).
• 30% – 35% in Performing Credit Strategies, NCDs, and InvITs.
• 20% – 25% in Private Credit, including real estate and infrastructure strategies, and select NCDs.
• 25% – 35% in Arbitrage Funds (minimum three-month holding period), Floating Rate Funds (nine–12-month holding period), and Absolute Return Long/Short strategies (minimum 12–15-month holding period).

For tax-efficient fixed-income solutions, 20% – 25% of the portfolio may be allocated to Conservative Equity Savings Funds, with a minimum holding period of three years.

As the market stabilizes following a period of correction, a strategic approach to investments remains crucial. The recent moderation in valuations and improving economic indicators suggest a positive long-term outlook for Indian equities. Investors are advised to maintain a well-balanced portfolio and capitalize on market opportunities based on their risk appetite and financial goals.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.