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According to Alpha Strategist September 2024 report by Motilal Oswal Private Wealth (MOPW), India's economy has witnessed all phases. In FY13, India was considered a fragile economy due to low GDP growth of 5.5%, high inflation at 10%, and alarming twin deficit at 10% of GDP. By FY17, the economy has not just recovered but was also in an expansion phase with GDP growth at 8%, Inflation at 5%, and twin deficit at 4%. Subsequently, the economy went into a slowdown post the NBFC crisis in 2018-19 and hit a trough during the pandemic in FY21. Post recovery and a phase of stability over the last couple of years, the economy is now in a Goldilocks phase where GDP growth is 7%, Inflation is a reasonable 4.5%, and twin deficit is well managed at 6% of GDP.

 India's forex reserves have steadily risen over the last couple of years and are at a high of USD 680 bn. A well-managed current account during this period has ensured that the INR has also remained stable in a narrow range.

 Along with the economy, the domestic equity market has remained quite resilient during global events. While corporate earnings have been the major driver for stock market performance over the last three years, the other key driver has been domestic institutional investors (DIIs). Post CY21 till date, the net inflows from DIIs has been USD 90 bn, nearly 10x the inflows from foreign institutional investors (FIIs) during the same period. Retail participation and Financialization of Savings are structural megatrends which are likely to support domestic equities over the next several years.

 In terms of valuations Large Caps remain fairly valued while Mid & Small caps on aggregate are relatively far more expensive. However, in terms of earnings growth expectation over the next couple of years, consensus estimates suggest higher growth for Mid & Small caps over large caps. Sector rotation is likely to continue. MOPW suggests adopting a staggered investment approach over 3-6 months for Large cap & Multicap strategies. For select Mid & Small cap strategies, investments should be staggered over the next 6-12 months.

 Equity Outlook

The equity outlook remains positive due to strong economic growth, capital expenditures, and expected rate cuts. While large-cap stocks appear fairly valued, mid-and small-cap stocks are trading at higher valuations, though earnings growth for these segments is strong.

If equity allocation is lower than desired levels, investors can increase allocation by implementing a staggered investment strategy over 3 to 6 months for large & multi-cap strategies and 6 to 12 months for select mid & small-cap strategies with accelerated deployment in the event of a meaningful correction.

Fixed Income Portfolio Strategy:

MOPW reiterates their view to have a duration bias in the fixed income portfolio so as to capitalize on the likely softening of yields in the next 1-2 years

 30% of the portfolio may be invested in

* Actively managed duration funds to capitalize on evolving fixed income scenario

* For passive duration allocation, one may invest in long term maturity G-sec papers to benefit from accrual income and potential MTM gains

 30% - 35% of the portfolio shall be allocated to Multi Asset Allocation funds & Equity Savings Funds

* These funds aim to generate enhanced returns than traditional fixed income with moderate volatility through a combination of Domestic Equity, Arbitrage, Fixed income, International Equity, Gold & other Commodities

 To improve the overall portfolio yield, 30% – 35% of the overall fixed income portfolio can be allocated to Private Credit strategies, REITs/InvITs & select high yield NCDs

For liquidity management, investments can be made in Floating Rate (9 to 12 months) & Arbitrage Funds (minimum 3 to 6 months)

 Silver

Demand & Supply

In the last three years there has been a deficit (demand exceeding supply) for silver which supported the prices. The trend for industrial demand for silver is increasing since 2020 and has reached at all highs.

 Outlook

As per MOFSL research, Silver has a strong demand outlook based on the following reasons:

* Industrial demand boost

* Boost in Manufacturing and Industrial activity in China

* Potential for pickup in Green tech

 Gold Outlook

The gold market for August 2024 was shaped by a complex interplay of geopolitical uncertainties, economic indicators, and evolving monetary policies. While the rise in gold prices indicates a robust interest in the asset, the market remains susceptible to ongoing volatility stemming from both political and economic developments. As the market transitions into September, one should keep a close watch on rate decisions from the Federal Reserve and emerging geopolitical events that could further impact gold prices. MOPWs view on gold remains positive and continue to suggest having an allocation in your portfolio.

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