Where to invest Rs 10 lakh now? Domestic investors should stick to the Indian market for now: Nimesh Chandan, Bajaj Finserv MF

Edited excerpts:

How much of a challenge do you think these tariffs will be for markets and the economy?

In terms of the economy, we have a trade surplus  of about $45 billion with the US, which is a little over 1 percent of the economy. So, it will not be a big impact for us. However, it may have an impact on sectors where India has a large exposure to the US in terms of exports, of either goods or services.

Also read | The impact of Trump Tariffs on your equity, debt and precious metals investments

The reciprocal tariffs that have been imposed on all US trading partners will lead to stagflation in the US. These tariffs will ultimately be borne by  consumers and US businesses that have supply chains across the world. The frequent changes in tariff proposals and uncertainty on future tariffs will hinder new investments in the US.

One needs to also consider that it is a relative game. If high tariffs are imposed on India but our competitors experience even higher rates of tariffs, then India is relatively better placed and has opportunities. Though for some time Indian markets will also be volatile due to the uncertainty.

Do you think the markets will recover here on?

We are optimistic about the Indian equity markets. From August, we've been a little cautious about mid and smallcaps, which is why we launched a largecap fund around that time so people could switch some of the allocation towards largecaps. In a lot of areas in small and midcaps, valuations were touching historic highs.

We were expecting a correction in these categories. Even in our flexicap fund, we have been increasing allocation towards largecaps from July 2024. Hence, you would have seen mid and smallcap allocations go down.

Even with the correction, largecaps continue to be the best placed, as the risk-reward ratio is still better in this category. However, many of the small  and midcap valuations are starting to look interesting. While they may still be above their average (key EMA) valuations, there are many businesses that now look attractive.

Also read | Gold's record run grabs headlines but silver may be the real star of 2025

In a nutshell, we like largecaps as a category, and quality as a style or factor. Companies with good cash flows, return on capital, that have a bit of a moat are attractive to us.

Do you think deep corrections are behind us?

Deep corrections seem to be behind us when we consider the current knowns on the table. There could be some unknown unknown which can hit us, but other than that, all the negative news seems to be factored in. Difficult to say what will be the exact bottom, but we are very close to it.

Next year, as far as the domestic economy is concerned, there are many positives. For instance, the GDP and Nifty earnings growth will be better than FY25.

Apropos the Q4 earnings season, do you believe the worst of the downgrades is behind us?

It certainly looks like that, especially for largecaps, where many sectors have already seen downgrades.

Big sectors like consumer, banking, and financial services will probably see their slowest growth this quarter and then possibly start trending up from Q1 FY26. Mid and smallcaps in  these sectors may not be well tracked, hence people may be a little slow in adjusting to the new earnings. So, we could see earnings downgrades in mid and smallcaps, though not so much in largecaps. But looks like we will hit the bottom in terms of downgrades, and then next year the outlook gets quite interesting.

How are you balancing risk and return, especially during this time of market volatility?

We have been moving towards largecaps in all our fund allocations. We have been moving towards quality stocks, companies with high return on capital, good cash flows.

Also read | The FY26 Investment Playbook: Here's how you could manage your money this year

Also, the comfort of good dividends is helping us. We have moved towards historically low-beta sectors, like healthcare and consumption.

Plus, we don't take cash calls, for I believe that our low beta allocation will  help us  navigate these volatile markets.

Any sectors or pockets that you've exited in recent times?

We have not exited any particular sector. All our funds follow a certain discipline — e.g.,  the flexicap fund is based on megatrends, where we allocate based on long-term changes and trends that we see in the economy and businesses. Our large and midcap fund is based on the concept of moat investing.

However, we have certainly trimmed a lot of mid and smallcaps in the last six months because they were hitting our bull case target prices.

But last month we added some mid and smallcaps because they've come to a good level after correcting more than 30 percent.

Do you think India is the safest bet right now or are there geographies investors should look at to allocate a part of their portfolio?

India has many strengths. It is the fastest growing economy among its peers and you have the comfort of its demographics. India also has a huge basket of sectors and industries one can invest in, whether you look at large, mid, or small caps, and its  diverse businesses contribute to the earnings growth of the country. This is why India's growth is less volatile than other emerging markets and even some developed ones.

Even China and Europe are  going through a slowdown. The rally in the US markets was mainly concentrated around the top tech stocks, the magnificent seven, and those are seeing a correction now.

Companies in India also typically  enjoy a high ROCE (return on capital employed), which is higher than other emerging markets. Commodity exposure in India's top indices is lower, so you don't see exaggerated volatility when commodity prices fluctuate.

All this  makes India a well diversified market that's low on volatility, and poised to grow steadily. At this point, it is better for Indian investors to stick to the domestic market.

If someone has Rs 10 lakh to invest right now, what should be the investment strategy?

I have thought of two different allocations based on whether it's a conservative or aggressive investor. The investment horizon and risk profile will also matter, but I'm broadly laying out two portfolios.

If the investor is handing over the asset allocation to a fund manager, then a BAF (balanced advantage fund) and MAAF (multi-asset allocation fund) are the way to go. We keep changing our allocation in equities and fixed income  in our BAF,  and in our MAAF, also in gold, based on the opportunities that we see.

If an aggressive investor wants to  allocate funds himself , then I would recommend about 70 percent in equities, 5 percent in gold and 25 percent in fixed income.

For a conservative investor, I would recommend 55 percent  in equities, 10 percent in gold, and 35 percent in fixed income.