Therefore, it is essential not to ignore gold and fixed income securities and not to exaggerate on equities after the strong rise in equities over the past two years.
Stock markets have corrected sharply, with the Nifty down 15% from its October 2021 high, while the Nifty Midcap 150 is down 17% over the same period. Valuations have turned attractive with the Nifty 50 PE at 20.05 from 29.51 a year ago, but fund managers fear the strong 19% earnings growth forecast for 2022-23 will not materialize.
“We are seeing the impact of inflation and rising input costs on corporate earnings. Markets may remain constrained as they seek a balance between valuation and earnings in an interest rate environment. and inflation respectively,” said Rahul Singh, CIO (Equities), Tata Mutual Fund.
As the global economy slows due to central bank liquidity tightening and the war between Russia and Ukraine will keep energy and food prices high, equities could remain in a narrow range and therefore fund managers believe that investors should overweight equities.
“New investors should stick to their asset allocation and scale their equity investments with a bias towards large caps,” said Vineet Nanda, founder of SIFT Capital. Vineet thinks these investors could have an allocation of 65% to equities, 25% to equity fixed income and 10% to gold. Financial planners prefer large caps to mid and small caps because these companies can be more competitive in difficult environments.
While many investors have steered clear of fixed income over the past two years due to low yields, the benchmark 10-year index has jumped 120 basis points over the past year, fund managers believe long-term debt investors have a good entry point. Investors can earn up to 8.08% on a 5-year AAA-rated corporate bond, while a 5-year GSec now yields 7.07%.
“Investors should not ignore debt in their portfolios and could stagger their investments over the next 3-6 months in target maturity funds where cost, liquidity and return visibility are low,” said Niranjan Awasthi. , responsible (product),
Fund managers also believe that gold prices in a range over the past year present a good opportunity for gold allocation. A report from UBS Securities points out that gold has grown in importance as an investment asset over the years and is considered a good hedge against depreciation of the US dollar and against short-term inflation.