Indian markets have made a remarkable recovery in the past three sessions after the initial turmoil caused by the closely fought Indian Lok Sabha elections. With a staggering 6% gain during this period, benchmark indices have proven resilient and regained lost ground.
Notably, today’s surge has lifted the index by around 2%. This impressive recovery coincides with the Reserve Bank of India’s optimistic revision of its FY25 GDP growth forecast to 7.2% from its previous estimate of 7%. Moreover, the central bank maintained a stable course by keeping the repo rate unchanged at 6.5% for the eighth consecutive session, signalling stability and confidence in the economic outlook.
The sharp fall of 6% in a single day in the Indian market has understandably spooked many retail investors, especially the less experienced ones. To protect against such market volatility and sudden declines, experts recommend a diversified portfolio consisting of various asset classes such as gold, bonds and stocks.
Despite the turmoil caused by the election results, most experts maintain a bullish outlook for stocks, highlighting the potential for robust returns. They recommend allocating at least 50% of your portfolio to stocks, highlighting their enduring appeal. They also suggest dedicating around 10-35% of your portfolio to gold and 15-25% to bonds, depending on your personal risk tolerance. This balanced approach aims to mitigate risk and optimize returns amid market volatility.
Let’s take a look at the recommendations of market experts.
Shashank Pal, Chief Operating Officer, PL Wealth Management
Indians tend to be weak on gold due to its ability to protect the purchasing power of the rupee besides inflation hedging and sentimental reasons. Fixed income instruments and bank deposits are the go-to for Indians but they fail to realise two things. One, they do not necessarily outperform inflation and two, they may carry interest rate risk and credit risk. Given the current domestic and global geopolitical and economic situation, the asset allocation mix for gold, fixed income and equities could be in the proportions of 5-10%, 15-25% and 65-80% respectively. Equity allocation should be in multiple tranches, probably over the next 1.5-2.5 years, if you are thinking in the long term. (i.e. 7+ years).
Axis Securities
The stock market is currently pricing in perfection. The NDA is back for a third term, but the coalition government is once again on the brink of collapse. This means investors may be looking to shift towards large caps over small and mid-caps, given the difficulty in pleasing allies. Talking about gold, it has benefited greatly from a weaker dollar, given the declining inflation rate in the US. Historically, looking at 25 years of data, gold has returned an average of 4.5% in the seven months to June, rising in 19 of those 25 years.
So yes, historically, there are reasons to have a good allocation (around 25 percent) to gold, both from a fundamental and price perspective. Domestic bonds are doing great. We don’t think the RBI will cut rates before the Fed, so we might not see a cut until the US central bank cuts rates first, but the macro is certainly pointing in the right direction despite geopolitical shocks. So, a 25 percent allocation to short or medium term government bonds makes sense.
Rahul Ghose, CEO of Hedged.in
I would still allocate 50 percent to equity and options structure. Those who already have a portfolio may want to keep long term hedges in their portfolio as well for the next 6-9 months. FY25 may not be as robust as FY24. But still, it is fair to say that the long term outlook remains healthy. We can expect Nifty to rise up to 24,300 this year. For the remaining 35 percent, you should consider investing in not just gold but a combination of gold and silver and the rest in bonds.
Deepak Jasani, Head of Retail Research, HDFC Securities
It depends a lot on the age and risk tolerance of the investor. Having said that, an allocation of 10:35:55 ​​between gold, bonds and stocks respectively would be ideal for an investor with a medium risk tolerance between the ages of 40-45. However, in the long run, an allocation of 10:30:60 would be ideal for an investor with a medium risk tolerance between the ages of 40-45.
Chirag Muni, Executive Director, Anand Rathi Wealth Limited
Investors are encouraged to diversify their investments across asset classes. An ideal allocation would be 80% stocks and 20% bonds, which would allow stocks and bonds to contribute to the stability of a portfolio’s performance. With this allocation, investors can expect a long-term return of 12%.
Investors should consider gold only if they have some long-term commitment towards the asset class, such as accumulating gold for marriage or other personal reasons. Investors who want to allocate funds to gold should limit their contribution range to 5-10 percent of their overall portfolio. The best vehicle to invest in gold is Sovereign Gold Bonds (SGBs), as they offer appreciation in the underlying assets and an additional annual interest coupon of 2.5 percent.
For short-term investments of less than a year, it is advisable to invest in bond funds. These funds usually offer stable returns with low volatility.
Vaibhav Jain, Head of Content & Education, Share.Market
Asset allocation should be the ultimate goal for every individual from a long-term perspective. Strategic asset allocation should be decided as per the investor’s personal risk profile and goals. However, the allocation can also be tweaked to take advantage of temporary/short-term events. This is called tactical asset allocation. For a medium-risk investor with not much debt, from a 10-15 year perspective, he should invest around 50-60 percent in equities, 20-30 percent in bonds and 5-10 percent in gold.
Yogesh Kalwani, Head of Investments, InCred Wealth
After the strong performance over the past two years, equities as an asset class should provide moderate returns. We have changed our stance on equities from positive to neutral. For equities, we prefer large caps and quality mid-cap stocks. Over a three-year holding period, we believe equities can deliver superior returns. Investors with a balanced risk profile should consider 50% equities, 30% bonds, 15% alternative investments and 5% gold. Fixed income investments are essential to ensure stability in the portfolio.
Read also: CLSA restructures India portfolio after election results, drops L&T, adds HCL Tech
As market conditions change, experts agree on the importance of a balanced approach to asset allocation. While stocks remain the cornerstone of many portfolios, diversification into gold and bonds is becoming more prominent. As risk profiles and investment time horizons vary, it is recommended to utilize strategic and tactical asset allocation strategies to tailor allocations to personal goals and market outlooks for long-term wealth preservation and growth.
Disclaimer: The views and recommendations expressed above are those of the individual analysts or brokerage firms and not those of Mint. We recommend checking with a qualified professional before making any investment decisions.
3.6 Million Indians visited us in a single day and chose us as their platform for Indian general election results. Check out the latest updates here!
