What should your stock and fixed income portfolio look like? Motilal answered personal finance

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The MOPW report highlights that Indian equities, especially small and mid-caps, are trading at a significant premium to long-term averages, with strong fundamentals. Sustained inflows from domestic institutional investors (DII) and improving return on equity (RoE) across several indices act as buffers against potential volatility from outflows from foreign institutional investors (FII). However, rising geopolitical tensions and rising crude oil prices are fueling concerns about inflation, which could influence interest rate cuts. With these risks in mind, the report suggests that after four years of strong double-digit growth, it may be prudent to temper earnings growth expectations.

B. Impact on Iran – Tensions in Israel – Increase in crude 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.

RoE profile has improved across several Nifty indices and expected earnings growth also appears modest

MOPW recommends a tiered approach to investing, with a preference for large- and multi-cap strategies in the short term and mid- and small-cap strategies over the longer horizon.

Focus on fixed income: It is recommended to maintain a duration bias in the fixed income portfolio to capitalize on potential yield softness in the coming years.

Stock Portfolio Strategy

The outlook for equity markets remains positive, based on the evolution of corporate balance sheets, the growth of the investment cycle and the expectation that profits will remain strong over the next two years.

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

Based on their risk profile, investors with an appropriate level of capital allocation can continue to invest

If the equity allocation is below the desired level, MOPW suggests a staggered approach, recommending that investors gradually allocate funds to large-cap, multi-cap equity strategies over the next three months. This cautious approach allows for potential market corrections and offers balanced exposure to stability and growth.

Selective mid- and small-cap investments:

Duration: 6 to 12 months

Once you get into large caps, consider shifting your focus to selecting mid- and small-cap strategies. Although these segments have greater growth potential, they also carry increased risks.

Fixed Income Portfolio Strategy

MOPW reiterates its view of maintaining a duration bias in fixed income portfolios to capitalize on potential yield weakness over the next 1-2 years.

30% of the portfolio can be invested

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

• For passive time allocation, one can invest in long-term G-sec bonds to benefit from the accumulated income and potential gains from MTM.

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

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

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

For liquidity management, investments can be made in floating rate (9 to 12 months) and arbitrage (3 to 6 months) funds.

Gold Perspective

• While geopolitical tensions have increased gold's risk premium, rising tensions could increase its safe-haven appeal.

• Central bank purchases, festivals and wedding-related domestic demand can stimulate emotions.

• In the next 2 years, gold could reach new highs in the coming years