January 30, 2023

FDI Forum

Earn the right Invest

Three investment strategies to navigate 2023

India offers a secular growth story that is unique among emerging and developed economies. Thanks to the proactive measures by the Reserve Bank of India and the Government’s careful manoeuvring of the economy during the pandemic times, India emerged relatively unscathed. Given the increased optimism around the Indian economy amidst the instability in the rest of the world, India consequently stays one of the most expensive markets globally. Also, optically India appears to be expensive compared to several other markets owing to the sharp correction other markets have witnessed, thereby making their market valuations attractive. 

In the interim, corporate India also significantly reduced its debt on its balance sheets and has touched a decade-high improvement in corporate profits to GDP. Credit growth also has seen a robust uptick and incremental credit growth in FY23 is expected to remain strong. With US and Europe on the quantitative tightening path and Japan initiating steps in the form of a modified yield curve control strategy, we believe equity markets will be volatile in the near to medium term. Going forward, growth may emerge as a point of concern rather than inflation. Keeping in view all these aspects, we believe investors will be better off with multi-asset investing. 

Listed below are three aspects investors should be mindful of in the year ahead:

1) Opt for Multi-Asset Strategy 

Historical data time and again has shown that the key determinant of wealth creation is optimal asset allocation. Investing across asset classes minimises the risk from one particular asset class. Also, the correlation between asset classes is at best minimal or negative. Hence, even if there is an adverse development in any one asset class, the overall portfolio will not be much affected. At a time when the Indian equity market valuation is relatively expensive compared to other markets, investors should not focus only on equities, by also invest across asset classes like debt and gold. In a category like the multi-asset, the fund manager has the flexibility to distribute investments across equity, debt, gold, and many other asset classes.

Gold is another intriguing asset class for 2023. After the structural flaws in cryptocurrencies and the tapering of global central banks, commodities like gold and silver have now emerged as interesting asset classes to consider. Given that cryptocurrency is no longer a haven for investors around the world, a larger allocation to gold is probable in this situation. One of the tactical approaches to allocating to gold is again through a multi-asset fund through which one can have a calibrated exposure to the yellow metal.

 2) Invest in Debt

Debt funds, meanwhile, seem to be in a stronger position because of the greater yields that high inflation and rising interest rates bring. The last few months have seen a significant improvement in yields. Short-duration funds are likely to be great investments for investors in this evolving scenario. Another debt category that an investor may want to think about is dynamic bond funds. Given that short-term rates are likely to remain high due to restricted liquidity, liquid and ultra-short seem to be better positioned for short-term parking of money than any other traditional interest-bearing routes.

3) Stick to SIP

For equity investing, investors will be well placed by considering schemes with the ability to invest across market capitalizations, industries, and themes. Opt for large-cap, Flexi caps over mid and small caps. The business cycle is another category which appears attractive. Continue with SIPs and do not be discouraged by occasional short-term volatility. Investing through the SIP will help you to capture all phases of the market in a simplified and disciplined manner. From a 12 to 18-month perspective, we believe systematic investing in export-oriented themes like IT and pharma could deliver returns as recession fears would have abated by then.



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Disclaimer

Views expressed above are the author’s own.



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