Therefore, it is essential not to ignore gold and fixed income and not to go overboard in equities after a sharp run in stocks over the past two years.
Equity markets have sharply corrected, with the Nifty down 15% from its October 2021 high, while the Nifty Midcap 150 is down 17% over the same period. The price of Nifty 50 PE has become attractive at 20.05 as compared to 29.51 a year ago, but fund managers are concerned that the projected 19% higher earnings growth for 2022-23 may not materialize.
“We are seeing the effects of inflation and higher input costs on corporate earnings. Markets may remain in the range as they seek to strike a balance between valuation and earnings in terms of higher interest rates and inflation,” said Rahul Singh, CIO (Equities). .
As the global economy slows due to liquidity crunch by central banks, and war between Russia and Ukraine will keep energy and food prices high, equities may remain limited and therefore fund managers believe investors should weigh more on equities.
Binit Nanda, founder of SIFT Capital, said, “First-time investors should stick to their asset allocation and suspend their investments in equities with big-cap bias.” Binit believes that such investors can have 65% allocation in equity, 25% fixed income in equity and 10% gold. Financial planners prefer large-caps over mid- and small-caps because such companies can compete better in tough environments.
Although many investors have been away from steady earnings over the past few years, due to the low returns with the 10-year benchmark increasing by 120 basis points over the past year, fund managers believe that long-term debt investors have a good entry point. Investors can earn up to 8.08% on 5-year AAA-rated corporate bonds, whereas 5-year GSec now earns 7.07%.
“Investors should not ignore debt in their portfolio and in the next 3-6 months they can invest in a target maturity fund with low cost, liquidity and visibility of returns,” said Niranjan Awasthi, Head (Products).
Fund managers also believe that the range-limited gold price over the past year presents a good opportunity for gold allocation. A report by UBS Securities notes that gold has become an investment asset in recent years and is seen as a good hedge against the devaluation of the US dollar and short-term inflation.