Moneycontrol
Last Updated : Nov 20, 2017 05:10 PM IST | Source: Moneycontrol.com

Sensex near record highs! Don’t forget these 3 steps before constructing your portfolio

In the short term, it is essential to look at individual stocks that offer superior value in terms of their valuation even at current market levels instead of looking at the headline indices.

An ideal portfolio strategy, irrespective of the index levels, for an investor of the age of 30-40 years would have a ratio of 60 percent in equity (direct + mutual funds) and 40 percent in debt and cash, Prasanth Prabhakaran, Senior President & CEO, YES Securities (India) Limited, said in an exclusive interview with Moneycontrol’s Kshitij Anand.

Q) The month of October belonged to bulls with 6 percent gains on the benchmark index and in November we got Moody’s upgrade which pulled the index higher. Do you think the rally could take a halt in December as we approach key events such as US Fed policy review, the outcome of state election results, as well as upcoming holiday season (Christmas holidays)?

A) We continue to believe that Indian markets are in a phase of a secular bull run. Hence, even if there are event-based intermittent corrections in the Indian markets, the long-term trend remains bullish.

These events in the immediate future could be the outcome of the state elections or the US Fed policy review but we firmly believe that it will not reverse the overlying trend of upward asset values.

In the short term, it is essential to look at individual stocks that offer superior value in terms of their valuation even at current market levels instead of looking at the headline indices.

Q) What is your call on the recent tax rate cut by GST Council? Do you think it will help take some pressure off the trading community and boost demand especially on those goods that now attract less tax?

A) From the time GST has been introduced, the Government had stated that they would take regular feedback and tweak rates, such that the impact on the ground is minimal. So, they have just stuck to the same prudent path after evaluating its impact on various sectors.

GST rate tweaking has been done on the FMCG, building material and discretionary space items – an area which has been seeing good traction.

While the recent tax rate cut is expected to be a booster, the fact is that smaller trade partners (both organized and unorganized) and the distribution channels are still grappling with GST implementation. This would take another quarter or so to settle down further.

The largest beneficiaries in the GST reform initiated by the Government would be the organized players who are likely to grow at a faster pace owing to a pick-up in demand as well as market share gained from the unorganized players.

Q) Markets are trading near record highs – what would be your advise to investors – direct equities or invest in markets via mutual funds?

A) It is essential for an investor to follow the below-mentioned steps, especially since the markets are at all-time high valuation and isn’t backed up with earnings growth.

STEP 1: As the first step, it is essential for an investor to choose a good Investment Advisor (IA). A seasoned IA would be a professional who would spend time in identifying the right portfolio combination for a client, based on his/her risk profile. He would also keep track of changes in trends in the financial markets and track the client’s portfolio on a regular basis.

STEP 2: It is essential for an investor to remain disciplined in the quest for wealth creation. This would involve tracking one’s financial goals and work with the IA in achieving the same. It is highly essential that he/she constantly reviews their Financial Plans with the IA.

STEP 3: It is only the seasoned investor who has the time and inclination to understand businesses and balance sheets who should be in the direct secondary markets.

Q) Do you think Nifty could make an attempt to scale Mount 11K before the close out of this year?

A) As I said, it is essential to stop looking at the headline indices and instead look at individual stocks that offer superior value in terms of their valuations even at current market levels.

Headline indices are expensive at this point in time as recovery is yet to be broad-based. Q2 results declared till date, indicate that earnings are on the path of improvement too.

Fundamentals are expected to improve on the back of improving macroeconomic factors with recovery led by consumption, followed by public sector capex and external demand improvement. Benefits of reforms, percolating to the ground level, is a long-term factor which further strengthens our fundamentals.

Q) What should be the ideal portfolio strategy for investors considering the fact we are trading at record highs and the average age of the investor is 30-40 years? How much one park in direct equities, mutual funds, debt instruments, or precious metals?

A) An ideal portfolio strategy, irrespective of the index levels, for an investor of the age of 30-40 years would have a ratio of 60 percent in equity (direct + mutual funds) and 40 percent in debt + cash.

Most retail investors who do not have the time or inclination to understand equity/debt investments should take the managed route and allow professional fund managers to manage their portfolio.

Q)  Where do you see crude oil heading? And, prices above USD 65-70/bbl will be a problem for Indian economy and markets?

A)A rise in crude oil prices would increase India’s import bill, put pressure on the rupee and which would finally add up, increasing the fiscal deficit. Hence, crude on the upper end of the spectrum would definitely put pressure on the Indian economy which in turn would translate into a more volatile stock market.

A USD 60-70 range should be a fair assumption in the near future, considering the geopolitical tension in the Middle East and cuts by OPEC countries.

Q) What is your call on sectors which have done extremely well in 2017 such as realty metals etc?

A) With the focus of the Government on improving the overall infrastructure of the country, we believe that metals would continue to trend upwards.

The short-term volatility isn’t ruled out as prices for select commodities have already run up. However, in the long term, a small allocation towards commodities is a sure shot way of participating in the Indian infrastructure play.

Real estate sector is facing multiple headwinds in the form of implementation of 3 main reforms which has affected demand and supply in this sector. RERA along with demonetization and GST has had a major impact on the real estate industry.

Organized large players with strong fundamentals and clean management would benefit, gaining demand from the smaller players. One has to be very specific when it comes to investing in the real estate companies
First Published on Nov 20, 2017 10:02 am
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