The events leading up to India’s 2024 Lok Sabha elections and their unexpected outcomes reminded brokerage Motilal Oswal (MOSL) of the saga of Game of Thrones.
The securities firm noted that although the current government failed to secure a majority on its own in its third term, it maintained its position as the largest party with the most votes, easing concerns that it would deviate significantly from its stated policies.
MOSL continues to maintain its view that a multi-asset investment approach is ideal to mitigate volatility in the evolving domestic landscape.
The firm noted that various market capitalization indexes have delivered robust returns over the past three years, with favorable earnings prospects for the future.Furthermore, given the momentum-driven theme and recent rally with valuations trading near their long-term averages (large caps), a phased investment strategy of 3-6 months for large cap and multi-cap strategies, and 6-12 months for select mid and small cap strategies, is recommended.
“The outlook for the equity market remains positive based on projections of reducing debt ratios on corporate balance sheets, rising capital expenditure cycle and a stable trend in earnings growth over the next few years. However, amid the current uncertainty, it would be prudent to tread cautiously by adopting strategies that are balanced and resilient in volatile times. Investors with appropriate levels of equity allocation based on their risk profile can continue to remain invested,” it suggests.
The most optimal lump-sum investment strategy is to invest across asset classes through multi-asset and balanced advantage funds, MOSL advises. For fixed income, MOSL reiterates its view that core fixed income allocations can remain duration-biased through active and passive strategies.
As for gold, MOSL believes geopolitical tensions continue to add a risk premium to the price. Central bank purchases are one of the main drivers of the recent rally. Also, the Fed’s delay in cutting interest rates could dampen expectations of a gold surge. MOSL recommended a bullish outlook with a target of $2,600 to $2,650 by the end of the year.
Elections and markets
The brokerage noted that while the BJP emerges as the largest party in the 2024 Indian Lok Sabha elections, it will not win a majority on its own, unlike in 2014 and 2019. A coalition government will be formed after two terms. However, with fewer coalition partners compared to previous coalition governments and the BJP remaining the dominant party, its approach to governance could be smoother.
MOSL noted that before a clear mandate was given in 2014, the country was ruled by coalition governments since 1989 (25 years). During this period, the Sensex has grown at a compound annual rate of 15% and even in the last decade when it was in majority, it has grown at a respectable compound pace of 13%, the brokerage highlighted.
Looking at the daily returns of the Nifty 50, there have been 32 instances since 2000 when the index has fallen by more than 5%. Historically, only three times have such declines been followed by negative returns for the index in the next three years. Since 2008, the market has delivered double-digit returns primarily in these three years.
Fixed Income Portfolio Strategy
MOSL reiterates its view on duration biasing the fixed income portfolio to take advantage of the expected decline in yields over the next 1-2 years. 65-70 per cent of the portfolio can be invested in a combination of the following:
– Actively and passively managed debt strategies to leverage tenors and accruals in response to changing bond scenarios
– Recommend equity savings funds/conservative multi-asset funds that aim to generate higher returns than traditional bonds with moderate volatility through a combination of equities, arbitrage, bonds, commodities and REITs/InvITs.
Further, 30-35 per cent of the overall fixed income portfolio can be allocated to high yielding NCDs, private credit strategies and REITs/InvITs to improve overall portfolio yield. For liquidity management or temporary parking, it is recommended to allocate investments to floating rate (minimum 9-12 months) arbitrage/ultra short term (minimum 6 months)/liquid (1-3 months)/overnight (less than 1 month) strategies.
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!
