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As markets experience sharp corrections, investors are evaluating asset class performances to refine their portfolios. The latest Alpha Strategist - February 2025 report by Motilal Oswal Wealth Ltd. offers data-driven insights into long-term trends across equity, debt, and gold.

Key Market Trends (Data from Alpha Strategist - February 2025, Motilal Oswal Wealth Ltd.):

Equity Market Valuations:

Large Caps are trading below the 10-year average forward PE multiple.

Mid and Small Caps remain expensive despite corrections, with 75% of stocks in Mid Cap 150 & Small Cap 250 Index down over 20% from all-time highs.

According to the Alpha Strategist report, “Mid and Small Caps continue to trade at premium valuations despite the correction, making selective investments crucial.”

The report further highlights that historically, deep market corrections have provided high returns over long-term investment horizons, making this an opportunity for disciplined investors.

Fixed Income Outlook:

RBI’s OMO purchases and the government's commitment to fiscal consolidation will likely keep yields stable.

The Yield Gap between US 10-Year and India 10-Year is at 220 bps, limiting further spread compression.

The report highlights that “investors should remain overweight on accrual strategies, given the limited room for further compression in yield spreads.”

Corporate bond spreads remain attractive, making select AAA-rated corporate bonds an attractive alternative for conservative fixed-income investors.

Gold’s Role in Portfolios:

The traditional inverse correlation between US real rates and gold prices has weakened.

With global diversification away from US treasuries, gold is emerging as a preferred safe-haven asset.

As per Motilal Oswal Wealth Ltd., “Gold continues to outperform as central banks increase their gold reserves, reducing dependence on the US dollar.”

The report also suggests that “gold's strong performance in recent years is a reflection of rising geopolitical tensions and de-dollarization trends.”

Investment Strategy (Based on Motilal Oswal Wealth Ltd.’s Recommendations):

Equity: Tactical accumulation in Hybrid & Large Cap funds, staggered investments in Flexi, Mid, and Small Cap funds.

Fixed Income: Overweight on accrual-based debt strategies.

Gold: Maintain gold exposure from an asset allocation perspective.

Alternative Investments: Investors seeking downside protection can consider exposure to select alternative investment funds (AIFs) focusing on structured credit and hybrid strategies.

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