What should your fixed income portfolio look like? – replied Motilal personal finance

Q

The MOPW report highlighted that Indian equities, especially small and medium-sized companies, are trading at a significant premium to long-term averages, with strong fundamentals. Sustained inflows from domestic institutional investors (DIIs) and improved return on equity (RoE) across indices act as buffers against potential volatility arising from foreign institutional investor (FII) outflows. However, increased geopolitical tensions and rising oil prices are increasing concerns about inflation, which could result in lower interest rates. With these risks in mind, the report suggests that after four years of strong double-digit growth, it may be prudent to moderate earnings growth expectations.

B. Iran's influence – Tensions in Israel – Increase in oil prices

C. Nifty Index – Valuation, Return Profile and Expected Growth

Nifty Smallcap 250 and Nifty Midcap 150 are trading at a significant premium to the long-term average.

The RoE profile has improved across Nifty indices and expected earnings growth also looks modest

MOPW recommends a staggered approach to investment, with preference for large and multi-cap strategies in the short term and medium and small cap strategies in the longer term.

Fixed Income Focus: It is advisable to maintain a duration bias in your fixed income portfolio to take advantage of potential yield softness in the coming years.

Stock portfolio strategy

The outlook for equity markets remains positive based on corporate balance sheet liquidation, a pick-up in the capital spending cycle and earnings expected to remain strong over the next two years.

However, given the uncertainties in the global context and rich domestic valuations, a cautious approach is advised by adopting a sustainable and resilient strategy.

Based on their risk profile, investors with the appropriate level of capital allocation can continue investing

If capital allocation is lower than the desired level, the ILO suggests a staggered approach, recommending that investors gradually allocate funds to the equity strategies of large and multi-company companies over the next three months. This cautious approach allows for potential market corrections and provides balanced exposure to both stability and growth.

Selective mid and small cap investments:

Duration: 6 to 12 months

Once you enter the large-cap market, consider shifting your focus to mid- and small-cap strategies. These segments, although they have greater growth potential, also carry increased risk.

Fixed Income Portfolio Strategy

MOPW maintains its view that the trend towards duration in fixed income portfolios remains to take advantage of a potential decline in yields over the next 1-2 years.

You can invest 30% of your portfolio

• Actively managed duration funds to capitalize on the growing fixed income trend

• For passive time allocation, you can invest in long maturity G-secs to benefit from accumulated income and potential MTM gains.

30%-35% of the portfolio can be allocated to multi-asset allocation funds and savings funds

The fund aims to generate incremental returns compared to traditional fixed income instruments with moderate volatility through a combination of domestic equity, arbitrage, fixed income and international capital. Gold and other commodities

To improve overall portfolio profitability, 30-35% of the total fixed income portfolio can be selected from personal credit, REIT/InvIT and high yield NCD strategies.

To manage liquidity, you can invest in floating rate funds (9 to 12 months) and arbitrage funds (3 to 6 months).

A golden perspective

• While geopolitical tensions have increased the risk premium for gold, further increases in tensions could increase the attractiveness of safe havens.

• Central bank purchases, festivals and domestic demand for weddings can add to the excitement.

• Over the next 2 years, gold could hit new highs in the next few years