Daily Voice: Investment veteran's FY25 portfolio: More largecaps, with a smattering of mid, smallcaps

Abhijit Bhave is the Managing Director and CEO at Equirus Wealth

Equirus Wealth managing director and CEO Abhijit Bhave thinks uncertainty over elections, government policies, regulatory changes and geopolitical tensions can threaten market stability this year, as he doesn’t rule out a “big correction”.

Bhave, who has spent more than 25 years in financial services industry, tells Moneycontrol that in FY25, investors should have more of largecaps in their portfolios but shouldn’t fully exiting mid and smallcaps. Edited excerpts of the interview:

The possibility of a significant correction, possibly around 10 percent, cannot be ruled out though there is a low probability of such a huge fall. Due to high buying interest of investors, who have been sitting on the sidelines with cash, waiting for such corrections.

A sustained rally has been witnessed over the past calendar year and market corrections are normal occurrences, driven by various factors such as changes in economic indicators, geopolitical events, or shifts in investor sentiment. While the exact cause of such a correction may not be known, it's crucial to acknowledge the inherent volatility in markets.

Uncertainties related to elections, government policies, regulatory changes, or geopolitical tensions could be the major domestic threats in 2024 that can potentially impact market stability.

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As we enter FY25, sticking with more largecaps might be a prudent strategy, though fully exiting mid and smallcaps would not be advisable. Largecap companies often exhibit more stability during uncertain market conditions compared to mid and smallcap stocks.

Additionally, larger companies typically have stronger balance sheets, diverse revenue streams and better access to resources, which can mitigate risks during market downturns. They are also high on corporate governance.

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However, investors should keep in mind their own financial goals, risk tolerance, investment horizon and have their own an asset allocation and portfolio diversification strategy in place at all times. Normally, one is better placed following a hub-and-spoke model with around 50-65 percent of the equity portfolio in largecaps, 20-25 percent in midcaps and remaining in smallcaps as well as thematic/sectoral allocation.

This does not apply for HNI and UHNI investors and those with aggressive risk profiles. These investors are better off talking to their expert wealth managers for creation of bespoke, customised portfolios.

It is possible that the equity market has priced in more than three interest rate cuts by the US Federal Reserve for 2024 but there are many more market factors at play here. The average of most market expectations is often reflected in asset prices, including equities.

It is important to remember that the US Federal Reserve's decision-making process is complex and influenced by multiple factors such as inflation, employment data, and overall economic health. The Fed's cautious approach to rate cuts in the current year could be attributed to its desire to balance inflationary pressures and financial stability concerns.

At Equirus, we expect the flow of IPOs to improve in FY25 compared to FY24, both in terms of the number of IPOs and total fund size. Favourable market conditions, investor appetite for new offerings, and larger number of companies seeking capital for expansion could drive this trend.

The answer is a firm Yes. The wealth industry is poised for significant growth in the coming years due to not only new wealth creation and incremental movement of money from physical assets to financial assets but also due to consistent influx of funds across all investor segments ranging from retail investors, HNIs, Ultra HNIs as well as FIIs.

Factors contributing to this growth include the unique positioning of the Indian economy across the globe as a strong, rapidly growing economy coupled with demographic dividend and stability of policy making. Add to this the power of a young India with increasing financial literacy, rising disposable incomes and the Wealth Tech revolution.

Additionally, demographic shifts such as wealth creation for SME entrepreneurs due to various government initiatives like “Make in India”, rise of new wealth in the ambitious “Bharat” across tier 2 and tier 3 cities and also transfer of wealth to the younger generations, is likely to further fuel demand for wealth management solutions.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.