Shantanu Awasthi
Elections are over and we have a decisive mandate in favour of the incumbent government. Investors have been waiting on the sidelines for long and now are pouring in monies in the equity market.
Benchmark indices have hit all-time highs and the euphoria has just begun. But, the big question is, how do we position our portfolio?
Going forward, returns in the market will be driven by earnings and the economy. Economy and earnings are likely to improve leading to more upside.
Policy stability and continuity will give more confidence to investors leading to increased domestic as well as foreign institutional (FII) flows.
Karvy's India Wealth Report projected Sensex at 1 lakh by 2025. We reiterate that same thought at current levels as well.
Historically, in election years, midcap has given betters return though please note that the past performance is no indicator of future returns.
Valuation gap with largecaps has reduced due to recent underperformance and selective stock picking is the way ahead.
Midcaps should also benefit from un-organised to organised sector movement due to GST and more allocations from non-individual investors.
We have increased our midcap allocation in the model portfolio from 20 percent to 25 percent. Our model asset allocation for Mutual Fund portfolio is as follows:
We still would advise normal investors to keep the core of their portfolio in largecaps through large-cap and multi-cap funds. While up to 25 percent of the portfolio can be allocated to midcaps and smallcaps through mutual funds.
For large portfolio investors, we would advise focussed investments in specific strategies through PMS (Portfolio Management Services) e.g. concentrated large-cap, aggressive mid & small portfolio.
Infrastructure
The manifesto of the ruling party sets ambitious target on building Indian infra, especially highways, railways, metro and airports. Nearly Rs 100 trillion (i.e. Rs 100 lakh crore or around $1.4 trillion) capital investment in infrastructure is planned over the next five years (2019-24).
(This compares to $1 trillion infrastructure plan announced by US President Donald Trump in 2016 election. This also compares to Belt & Road initiative by China, where investment is pegged anywhere between $1-5 trillion).
India needs infra development and the government intent is there hence it makes sense to allocate money here. Low-interest rates ahead should support this program.
BFSI
BFSI is another important sector which will benefit from credit off take, increased penetration of financial services and insurance. Financial inclusion will play an important role. However, in light of current NBFC crisis, it is important to not to look at NBFC as one block.
Some NBFCs are not facing these issues and have good parentage. Also, microfinance is a different business model i.e. borrow long term and lend short term which is the reverse model compared to the troubled NBFC who borrowed short term and lent long term.
The top banking funds do not have exposure to risky NBFCs.
Examples -
ICICI Prudential Banking & Financial services fund
SBI Banking & Financial Services Fund
Top 5 Funds we would recommend for the next five years and why
Kotak Standard Multicap Fund
• Multicap diversified fund – currently large cap overweight around 80
• Focus is on sector rotation with forward-looking view & bottom-up stock selection within those sectors.
• Currently overweight on financial services, energy, construction and cement.
UTI Equity Fund
• High-quality low-beta portfolio. Prefers stocks that are cheaper than peers and their historical valuations.
• Ensures outperformance in volatile phases of the market also.
• The portfolio is sectorally well diversified across financial services (32 percent), consumer cyclical (17 percent), healthcare (12.9 percent), information technology (16 percent) and basic materials (10 percent)
Mirae Focused Equity fund
• Focused funds are a new category created post-SEBI scheme re-classification exercise where the scheme can hold a maximum of 30 stocks.
• High conviction picks.
• Mirae has strong credentials as an equity fund house with an excellent track record on their equity schemes and this focused scheme would be their best high conviction ideas.
• While this is a new scheme it merits addition to client portfolios to add a different style to their mutual fund portfolio.
HDFC Midcap Opportunities
• A midcap fund with GARP strategy.
• High-quality well-diversified portfolio (more than 60 stocks) which is good from a risk management perspective in the midcap segment.
• Focus is to ‘buy & hold’ good quality midcap stocks with a long term perspective.
IDFC Infrastructure Fund
• Pure Infrastructure play that invests across the infrastructure value chains (with exclusions like banking, autos, IT, pharma and FMCG, etc.)
• The portfolio is built to monetise the existing infrastructure opportunity in India.
• With government manifesto aim spending Rs 100 lakh crore should boost the stocks in this sector.
The author is Head, Family Office, Karvy Private Wealth.
Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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