Portfolio allocation is key in current market; here’s how you can invest Rs 1,00,000
Most experts feel that it is time to reduce exposure in equity markets from 70 percent earlier to 50 percent now, as volatility is likely to remain at elevated levels, and increase exposure towards fixed income and gold.
September's crash left many question the potential of equity markets to deliver returns in the long term. The fear of losing the initial capital led to a lot of redemptions in mutual funds.
It is a perfect storm brewing for India markets as both global and local factors are at play. And, the first question which comes to investors’ mind is — should I be investing at current levels? And, how much?
We pitched this question to many experts — how can an investor who is in the age bracket of 30-40 years invest Rs 1,00,000 in the given market conditions?
Most experts feel that it is time to reduce exposure in equity markets from 70 percent earlier to 50 percent now, as volatility is likely to remain at elevated levels, and increase exposure towards fixed income and gold.
The best strategy to invest in equity markets is to go via the systematic investment plan (SIP) route and follow a staggered investment approach.
With the equity markets undergoing tumultuous times due to deteriorating macros, an investor may look at making SIPs in good quality companies which have been bruised due to the bearish sentiment among the broad indices, and hence are now available at cheaper valuations.
“Staggered investments in quality stocks will enable accumulation of robust companies which will entail good returns over the long term,” Jimeet Modi, Founder & CEO at Samco Securities told Moneycontrol.
“As much as 50 percent of portfolio allocation should be done in equities, 25 percent in debt and the remaining in small portions can be invested in other assets such as gold. Investors should look at investing Rs 1,00,000 in SIP format over a period of next 6 months,” he said.
After falling by over 6 percent in September, the index is expected to trade in a broad range of 10,500–11,500 based on the F&O data. Movement in crude oil price, currency and trade wars are some of the macro concerns which will continue to weigh on the market in October.
However, any correction is likely to offer an attractive opportunity for investors who want to remain invested in this market for long time.
“In the current scenario of rising bond yields and election-heavy calendar, it is advisable to lower allocation to equities with a focus on quality names and contra bets. At a portfolio level, one can cap the maximum equity exposure at 40% levels,” Rajiv Ranjan Singh, CEO, Karvy Stock Broking told Moneycontrol.
“With regards to fixed income, the current environment presents an opportunity to capture the current high-yields by raising exposure gradually to cap it at 50%. Investors with a high-risk appetite can allocate a portion of this on short-term money market funds, to capture the high yields propelled by credit events and tight liquidity,” he said.
However, some experts feel that investors should avoid lump sum payment in one go into equity markets. Although, the portfolio strategy of investors may differ as per the individual’s risk-taking capacity coupled with market perspective, but one of the basic strategies is to have adequate diversification in a portfolio.
In a falling market, it is imperative to study the robustness of fundamental of respective companies and avoid making a purchase in an effort to average the cost if the fundamentals are at a loss, suggest experts. The second basic strategy is to stick with fundamental and quality companies only.
“For instance, if you plan to invest Rs 1 lakh in an equity market which is currently more volatile then it is more advisable to invest Rs 20,000-25,000 on a periodic basis rather than putting lump sum. By investing on staggered basis it will eliminate the risk of catching a falling knife, and help you to average on cost more efficiently,” Dinesh Rohira, Founder & CEO, 5nance.com told Moneycontrol.
“However, for a conservative investor it will be prudent to diversify the same amount across multiple asset-class and allocating highest percentage in the range of 60-70 percent towards debt instrument with lower maturity,” he said.
Rohira further added that a part of allocation should be given to gold with about 10-15 percent of overall portfolio allocation. Therefore, proper diversification coupled with an evaluation of fundamental is key towards building a portfolio and rest in equity markets.
Here's what other experts suggest:
Analyst: Atish Matlawala, Sr Analyst, SSJ Finance & Securities
For the long-term investor, it is time to buy quality stocks with a high level of corporate governance. For short- to medium-term investors, it is better to sit on the side till the market settles.
Thumb rule is an investment in equity should be 100 – age. So somebody who is 70 years old should invest only 30 percent while 30 years old should have 70 percent of investment in equity.
Gold should vary between 5% and 10% while the rest should be in debt. Looking at the current scenario, we would suggest staggered investment in 3 tranches in the next 3 months.
Ritesh Ashar, CSO at KIFS TradeCapital
The investors should look for a portfolio with lower risk rather than going for the higher risk portfolio. If you look at the current market situation the ideal portfolio should consist of at least 60 percent into equity out of which 65-70% should be in large-cap 20% in midcap and 10-15% in small caps.
Another 15 percent should be into debt. Gold must consist of at least 20% of the portfolio whereas remaining 5% should be held in cash to secure the opportunities as and when it gets generated.
Stock specific, at current level stocks like NTPC, Power grid, Hindalco, Reliance Industries, Wipro, Gail looks quite impressive as Energy, Power and It are the sectors which are quite promising for medium to long-term.
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ReplyDeleteReally a useful blog.Portfolio is very important for every company it tells their financial position thanks for sharing this blog.
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