Budget 2024: Motilal Oswal’s Investment Strategies for Equity, Fixed Income, and Gold Amid Market Volatility

The Indian stock market, represented by indices like Sensex and Nifty 50, has seen a nearly 2% drop from its record highs. This decline is due to profit booking and concerns over high valuations. While the Union Budget 2024 had mixed effects, the market is expected to soon focus on corporate earnings growth.

The domestic equity market reacted negatively to the increase in capital gains tax, but analysts believe the small hike is not significant. However, concerns over high valuations remain, likely leading to short-term corrections. Motilal Oswal Private Wealth (MOPW) has shared strategies for investing in equities, fixed income, and gold to navigate the current market scenario.

Equity Strategy

Motilal Oswal recommends spreading investments over time given the current market valuations. Large-cap stocks are fairly valued, while mid and small-cap stocks are more 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 suggested.

The current equity market outlook is positive, driven by corporate debt reduction, increased capital expenditure, and expected profit growth. However, due to global uncertainties and high valuations, a balanced approach is advised. Investors with the right equity allocation should stay invested. Those with lower equity exposure should gradually increase it over the next 3-6 months in large and multi-cap strategies, and over 6-12 months for mid and small-cap strategies. Lump sum investments are suggested through Multi-Asset and Balanced Advantage funds, with quicker equity deployment if there is a significant market correction.

Fixed Income Portfolio Strategy

MOPW recommends focusing on the duration of fixed income investments to benefit from likely lower yields over the next 1-2 years. They suggest that 65-70% of the portfolio be invested in a mix of actively and passively managed debt strategies to take advantage of duration and accrual, along with equity savings funds or conservative multi-asset funds for moderate volatility and higher returns.

To improve overall portfolio yield, 30-35% of the fixed income portfolio can be allocated to select high-yield Non-Convertible Debentures (NCDs), private credit strategies, and Real Estate Investment Trusts (REITs) or Infrastructure Investment Trusts (InvITs). For managing liquidity 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 bought 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, making up 8.7% of total forex reserves, a level last seen 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 weight in equities, gold can act as a hedge against increased 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 approach. By following the strategies outlined by Motilal Oswal Private Wealth, including staggered equity investments, duration-focused fixed income portfolios, and strategic gold holdings, investors can navigate the current market volatility and prepare for future growth.