Maintain a balanced portfolio – 60% equities, 30% debt, 10% gold, says Satish Menon of Geojit

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Indian markets will trade on the upside and may surpass the all-time high soon, said Satish Menon, Executive Director at Geojit Financial Services. In an interview with MintGenie, Menon noted that however, a concern is that due to a resilient Indian market, it continued to trade at a high valuation compared to the rest of the world. He advises a balanced portfolio as the stock market must overcome the headwinds of recession and high valuation. Edited excerpts:

Where do you see Nifty by year-end (2022)? Is any chance of a new high before that? what factors could make that possible?

We have an optimistic view for Q4 CY2022. We believe it will trade on the upside and may surpass the all-time high. The important factor is the bounce of the global market after a lengthy 10 months of consolidation in CY2022. The mother of all stock markets, the US, is exhibiting a positive trend, suggesting that inflation has peaked and that the aggressiveness of monetary policy is behind us. This will help the Indian market.

Amid this volatile environment, what should a generic asset allocation for an investor look like?

Compared to our cautious outlook at the beginning of the year, we are now more positive about the equity market. However, we still advise maintaining a balanced portfolio as the stock market must overcome the headwinds of recession and the high valuation of the domestic market. We suggest a mix of 60 percent in equities as compared to 40 to 50 percent earlier in Q1. We recommend a value-based investment approach (stock and sector-specific). Debt can be 30 percent while gold should be about 10 percent.

Where would you advise new investors to invest in this volatile market? One piece of advice you would like to give all investors?

The stock market’s performance in 2023 is likely to be better compared to 2022. However, a concern is that due to a resilient Indian market, it continued to trade at a high valuation compared to the rest of the world. As a result, there is a risk that the domestic market may underperform in the short to medium term, as developed and emerging markets have become more appealing. However, India’s outperformance will be retained in the long term. Investors will have to maintain a stock-to-sector-specific approach with a balanced portfolio. Attractive sectors are IT, Pharma, FMCG, Telecom, Capital Goods, Green initiatives, Power, and Pvt Banks.

Are you bullish on mid and small-cap stocks currently or would you advise investors to avoid them?

Though the Indian market has been resilient in 2022, small caps took a heavy beating. Due to their discounted valuation, they are a good long-term investment. Regarding Midcaps, they have broadly reverted from lows during the year in-line with large caps and valuations are near the long range. The outlook is attractive on a medium-term basis. However, volatility is anticipated in the short term due to uncertainty about the performance of the global stock market in 2023 due to the threat of a recession, high inflation, and an aggressive monetary policy.

PSU Bank index surged 22 percent in the last 1 month. Should investors book profit now? Top picks in this space.

A deep discount in PSBs valuation and improvement in quarterly results reflecting growth in business, buffer provision, and asset quality led to the rally. The GNPA of PSBs has more than halved from the peak of 14.6% in FY18. A huge valuation gap between private and public sector banks created the arbitrage opportunity. However, the gaps have rapidly narrowed, limiting the upside in the short term. While on a long-term basis re-rating is expected to extend. SBI and BoB are our top picks among PSU Banks.

What is your take on the auto index? Is a recovery in sight?

The industry is expected to continue its revival in the second half of the year, driven by a low base and pent-up demand. As the economy is fully open, demand will remain elevated, especially for passenger and commercial vehicles, despite a minor semiconductor shortage. A major challenge is in the two-wheeler segment, where the average cost of vehicles has grown significantly, keeping the rural economy aloof due to lack of affordability and currency fluctuation affecting exports. We expect the transition to EV will play a major role going forward, about which a clear view is undetermined. Currently, we are positive on the CVs segment, Neutral on Passengers and cautious on the 2-wheeler segment.

What are your views on internet-related stocks like Zomato, Nykaa, Paytm and the new ones likely to go public soon like Byju’s. Yay or nay?

We have a mixed view regarding the new generation of Fintech & Consumer Tech companies. We are negative on highly valued and negative cashflow generators. While we are accommodating to those showcasing the ability to overhaul their business model and increase net cash generated from operations in the medium to long term.

What is your outlook on the IPO market?

A volatile secondary market in 2022 has affected the IPO market and is expected to remain subdued in the short to medium term. However, the response of investors to the offers of 2022 was decent because of the resilient domestic market, fair pricing, and opportunity to invest in new businesses. This was also in the context of high demand from institutions for diversification and HNIs & retail investors for listing gains. We presume that 2023 will be better compared to 2022.

Key risks that investors need to be aware of

Excessive inflation, high-interest rate, the high valuation of the Indian market and a possible recession in developed economies in 2023 are the major risks for domestic investors. The stock market’s performance in 2023 can get impacted by this. However, the market has been consolidating in 2022, factoring majority of these issues. Consequently, if the economy can overcome the problem in 2023, we may not be affected much, though volatility will prevail. Any correction will be used as an opportunity to Buy.

FII has turned net sellers again, do you see inflows like in August in November? What factors will help FII buy more Indian equities?

The extent of FII selling reduced in October and reverted to positive in November. It is forecasted that the hawkishness of Fed policy will end in Dec 2022. World inflation is also expected to slowly moderate. Such factors will diminish the strength of the dollar in 2023, which is a positive for EMs. Importantly, India is in a sweet spot with progressive industrial reforms, a strong domestic economy, and China & Europe plus policy. FDI inflow in India is at a high, soon FIIs inflows will revive, which was impacted in 2022 due to the risk-off strategy leading to selling in EMs. We can expect a reversal in the trend during 2023.

First published in mintgenie

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