Market corrections create opportunity to rejig portfolios and look for quality stocks.
The recent selloff in domestic equities dragged the benchmark indices – be it BSE Sensex, BSE Midcap and BSE Smallcap – down by up to 10 per cent from their respective all-time high levels hit in January 2018.
As a retail investor, if you are looking to invest Rs 1 lakh in the financial market now, you may have to look beyond stocks.
Market veterans are advising a 50:50 asset allocation between stocks and assets other than equities, including gold. You can put in around Rs 50,000-60,000 in equities and rest elsewhere, said a market veteran.
Independent market analyst Ambareesh Baliga says a retail investor should deploy mostly in equities, but in a staggered manner since the market has just got into a correction mode.
“Equities should get 60 per cent allocation, but just about 10 per cent investment should be made at current levels. The balance 50 per cent should be invested in low-duration bond funds for now, and then shifted to equities as and when required,” he said.
Baliga said one should avoid long duration bonds, since the yields are expected to continue moving up.
Out of the balance 40 per cent, one can invest about 15 per cent in gold, as this precious metal is expected to perform better in 2018-2019 after a long hiatus, he said.
Gold prices moved nowhere in last five years. The yellow metal traded at Rs 30,007 on February 9, 2018, down marginally by 1.56 per cent from Rs 30,483 quoted on the same day in 2013.
During the same period, the BSE Sensex has risen 75 per cent to 34,005 from 19,484.
Baliga suggests keeping 25 per cent in a savings account providing high interest and utilising the same to invest in forthcoming initial public offers (IPOs).
The primary market delivered mind-boggling returns in 2017. As many as 36 IPO from across sectors hit the market in 2017 and raised over Rs 65,000 crore.
In terms of listing gains, Salasar Techno Engineering topped the chart, recording a 140 per cent listing premium over the issue price of Rs 108. Kraft paper manufacturer Astron Paper listed at a 130 per cent premium to the issue price on the last trading session of 2017. The public offer was oversubscribed by 242 times.
Avenue Supermarts also doubled investor money on debut in March 2017. Shares of the D-Mart owner listed at Rs 604, a 102 per cent premium to the issue price of Rs 299.
A couple of big names are likely to hit the primary market in 2018. This include IRCTC, Hindustan Aeronautics, ICICI Securities, IRCTC, Reliance Jio, NSE, Joyalukkas, Lemon Tree Hotels, Bandhan Bank, GMR Airports and Lodha Developers.
“If one gets IPO allotment, free cash from equity allocation should be transferred to a savings account,” Baliga said.
Other market experts advise investors to use surplus money, not borrowed one to invest.
“Assuming an average risk profile and middle age, one can consider 50 per cent in equities, out of which 50:50 allocation can be to largecap and midcap stocks,” said G Chokkalingam, founder, Equinomics Research and Advisory.
“Out of the balance 50 per cent, one can allocate 40 per cent to fixed income securities such as bonds and bank deposits, and the remaining 10 per cent in gold,” Chokkalingam said.
Gold is also considered as a safe-haven investment due to its ability to retain value even at times of financial or political uncertainty. It is also used as a hedge against inflation.
Rohit Singre, Senior Research Analyst from Bonanza Portfolio believes one can put 65 per cent of the amount in equities after the recent fall, as valuations are looking attractive than earlier.
Havells, JSPL, RBL, Exide, Oberoi Realty, Repco, MCX and Teamlease are among the preferred midcap bets of brokerage Motilal Oswal. The brokerage also likes HDFC, ICICI Bank, Larsen & Turbo, M&M, Motherson SumiBSE 2.39 %, Titan, HPCL and NMDCBSE 2.84 % from the largecap space.
The ultimate protection is a well-diversified portfolio which gives you an exposure to high-quality stocks, gold as a commodity and some money in short-term government bonds as a buffer for a rainy day that would be the way to play a troubled scenario. The LTCG trigger is pretty potent over the next six-seven weeks, Saurabh Mukherjea, CEO, Ambit Capital, told ETNow in a recent interaction.