IGI Logo

According to “Journey to the East” - Alpha Strategist July 2024 report by Motilal Oswal Private Wealth (MOPW),  The Indian Equity market performance over the last three years has been quite impressive, led by stellar growth in corporate profits and robust inflows from Domestic Institutional Investors (DIIs). Notably, Foreign Institutional Investors (FIIs) have been net sellers over this time period and their ownership of Indian equities was at a decadal low prior to the domestic elections. With political continuity in place, FIIs could potentially recommence their “Journey to the East” i.e. equity markets could witness positive net FII flows going forward. 

There are many reasons for FIIs to positively review their allocation to India. On the economic front, India is expected to be the fastest growing major economy this year, and GDP growth outlook remains positive for this decade. India's external account has strengthened significantly post CY22, aided by increasing share of Oil imports from Eurasia at lower cost relative to imports from Middle East. This augurs well for continued stability in the currency (INR).

It is heartening to note that Indian stock markets are no longer impacted significantly by FII flows. The mega trends in financialization of savings and surge in retail participation have meant that DII flows are likely to provide cushion to any erratic FII behaviour going forward.

In terms of valuations, Large Caps are in fair valuation while Mid & Small caps on aggregate are relatively expensive. We suggest 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. 

Click here to see detailed report

Click to view previous reports

As Sensex and Nifty scale to new highs, India's contribution to the total market capitalization is also significantly increasing with current share at 4.2%. This is well above the 13 years' average of 2.7% which is expected to gain more share in the time to come.

Equity Strategy

The current equity market outlook is positive, driven by corporate deleveraging, increased Capex, and expected profit growth. However, due to global uncertainties and high valuations, a balanced and resilient approach is recommended. Investors with appropriate equity allocation should stay invested, while those with lower equity exposure should increase it gradually over 3-6 months investing into large and multi-cap strategies, and 6-12 months for mid and small-cap strategies. The optimal lumpsum investment strategy is through Multi-Asset and Balanced Advantage funds, with accelerated equity deployment if there is a significant market correction

Fixed Income

• 10 year G-sec yield eased from 7.35% in Oct 2023 to 7.00% in March 24 post which it saw increasing volatility trading in the broad range of 6.95% - 7.20%.
• Domestic Macros, Inclusion in Global Indices, change in India's sovereign outlook – positive for bond yields
• Downside risks may emanate from deviation in fiscal policy, mixed global macro signals, uncertainty in Global Central Bank Policies, geo political tension etc
• Core Allocation tilted towards duration through active & passive strategies to capitalize on evolving fixed income scenario

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

• 65% - 70% of the portfolio should be invested in combination of

-Actively & Passively managed debt strategies to capitalize on duration and accrual as per the evolving fixed income scenario

-Equity Savings funds/Conservative multi asset funds which aim to generate enhanced returns than traditional fixed income with moderate volatility through a combination of equities, arbitrage, fixed income, commodities, REITs/InvITs

• To improve the overall portfolio yield, can be allocated to 30% – 35% of the overall fixed income portfolio select high yield NCDs, Private Credit strategies & REITs/InvITs
• For liquidity management or temporary parking, months) Arbitrage/Ultra Short Term (minimum 6 months)/Liquid (1-3 months)/Overnight (less than 1 month) strategies.

Gold

Based on RBI data and MOPWs, the central bank acquired 3.7t of gold in May and 2.8t in the first week of June, bringing its total gold purchases as on 7th June in 2024 to 30.6t.Consequently, the RBI's gold holdings now stand at a new peak of 834.2t, constituting 8.7% of total forex reserves, a level last observed in April 2013.

Gold prices continue to be driven by demand from global central banks and ongoing geopolitical events. In a portfolio with higher weightage to equities, Gold can act as a hedge against any heightened volatility.

Above views are of the author and not of the website kindly read disclaimer