Budget 2024: Motilal Oswal outlines investment strategies for equity, fixed income, and gold amid market volatility

The Indian stock market indices, Sensex and Nifty 50, have experienced a nearly 2 percent correction from their record high levels. This dip comes amid profit booking and concerns over high valuations. While the Union Budget 2024 had a mixed overall impact, the market is expected to move beyond the budget and shift its focus towards corporate earnings growth.

The domestic equity market reacted negatively to the hike in capital gains tax, but analysts believe that the small increase is not material. However, concerns over stretched valuations persist, likely leading to short-term corrections. Brokerage house Motilal Oswal Private Wealth (MOPW) has outlined strategies for equity, fixed income, and gold investments to navigate the current market scenario.

Equity Strategy

Motilal Oswal suggests a staggered investment approach given the current valuations, with largecaps deemed fairly valued, while mid and smallcaps are relatively expensive. For large-cap and multi-cap strategies, investments should be spread over 3-6 months. For mid and small-cap strategies, a staggered approach over the next 6-12 months is recommended.

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 advised. Investors with appropriate equity allocation should stay invested, while those with lower equity exposure should increase it gradually over the next 3-6 months in large and multi-cap strategies, and over 6-12 months for mid and small-cap strategies. Optimal lump sum investments are suggested through Multi-Asset and Balanced Advantage funds, with accelerated equity deployment if a significant market correction occurs.

Fixed Income Portfolio Strategy

MOPW recommends a duration bias in the fixed income portfolio to capitalise on the likely softening of yields over the next 1-2 years. They advise that 65-70 percent of the portfolio be invested in a combination of actively and passively managed debt strategies to capitalise on duration and accrual, and equity savings funds or conservative multi-asset funds for moderate volatility and enhanced returns.

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

Gold

According to RBI data and MOPW, the central bank acquired 3.7 tonnes of gold in May and 2.8 tonnes in the first week of June, bringing its total gold purchases to 30.6 tonnes as of June 7, 2024. The RBI's gold holdings now stand at a new peak of 834.2 tonnes, constituting 8.7 percent 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 a higher weightage to equities, gold can act as a hedge against heightened volatility.

The recent correction in the Indian stock market reflects profit booking and concerns over high valuations. As the market shifts its focus to corporate earnings growth, investors are advised to adopt a balanced and resilient approach. By following the strategies outlined by Motilal Oswal Private Wealth, including staggered equity investments, duration-biased fixed income portfolios, and strategic gold holdings, investors can navigate the current market volatility and position themselves for future growth.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.