“The Lollapalooza effect” at play in stock markets, says Motilal Oswal. What should investors do?

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The performance of Indian markets this year can best be described with one word: volatile. From 18,300 levels at Nifty in January to 15,800 levels at the start of March, the market has been very choppy.

According to Ashish Shanker, MD and CEO, Motilal Oswal Private Wealth, in the current environment, the “Lollapalooza effect” is at play. being a leading supplier of key commodities; rising interest rates, etc. led to increased volatility,” he says in the April edition of the wealth management firm’s Alpha Strategist report.

The term Lollapalooza effect was coined by Charlie Munger, vice president of Berkshire Hathaway. Essentially, this means that a confluence of factors acting together can be a particularly powerful driver of human behavior, which can lead to both positive and negative outcomes.

Motilal Oswal Private Wealth believes that this year will be a year of consolidation for the markets, but from a longer-term perspective, market fundamentals remain “robust”.

“From a longer-term perspective, however, domestic equity market fundamentals remain strong given healthy balance sheets, low leverage and improving ROE leading to stable growth prospects. The longer-term outlook for India’s macroeconomics remains positive with a gradual progression towards a $6 trillion economy over this decade, Shanker said.

Equity strategy

Motilal Oswal Private Wealth’s proprietary Temperature Gauge Index indicates that the equity market is in the fair valuation zone.

“Therefore, for a gradual allocation to equities, we suggest an immediate rollout of 50% and a staggered rollout of 50% over a 3-6 month period. We continue to favor multi-caps and select mid-cap strategies. and small cap in MF/PMS/AIF”, recommends the wealth management company.

Despite significant challenges such as the Ukrainian crisis, the gradual withdrawal of excess global liquidity, the relentless rise in commodity prices, the disruption of supply chains, “the fact that the Nifty is down to just 5% from its recent peak underscores its resilience,” he said.

“Markets never fail to amaze and what has been a pleasant development is the rise of DIIs investing in stocks to the tune of over $26 billion in FY22, counteracting outflows from FIIs (17 .1 billion).”

Motilal Oswal Private Wealth believes that “BFSI and IT companies have been somewhat immune to the geopolitical crisis and may continue to do well; Metals and mining companies have benefited from the inflexible rise in commodity prices, while this has had a negative impact on consumer-oriented companies. Automotive, Consumer Staples and Cement could see margins lower due to higher raw material costs in Q4FY22 earnings, while Upstream Oil & Gas and Metals could experience a sharp increase over the same period.

Fixed income strategy

For the domestic fixed income market, fears of higher inflation due to rising crude and commodity prices have led to a steepening of the yield curve.

“The recently concluded MPC meeting revised growth projections to 7.2% for FY23 from 7.8% earlier, while keeping rates unchanged and maintaining its dovish stance. Although the decision to RBI to replace the FRRR with the SDF indicates an explicit start of monetary tightening, which clearly shows that the normalization of monetary policy has begun,” said Motilal Oswal Private Wealth.

For bond portfolios, the wealth management firm suggests “following a barbell portfolio approach, i.e. having a core allocation to high-quality, accrual-focused funds with maturities of 4 to 6 years, complemented by a 20-30% allocation to long maturity and high quality rollover strategies. . Tactical allocation to select High Yield, MLD, REIT, InvIT strategies can help improve the performance of fixed income portfolios. Gold should be treated primarily as a hedge against increased volatility.”

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