India’s recently announced INR20trn ($265bn; £216bn; €241bn) relief package to salvage the covid-19 hit economy was not enough to enthuse investors.
The prime objective of the multi-trillion package, nearly 10% of India’s GDP, is to put money into people’s pockets to spur domestic consumption and demand; as well as stimulate cottage, micro and small and medium enterprises (MSMEs) to empower the middle class.
However, the much-trumpeted package failed to excite the corporate world and investors alike, as evidenced by the sharp fall in the benchmark Bombay Stock Exchange (Sensex ) Index which crashed 3.4% to 30,028 points overnight, eroding almost INR3.7trn ($92.5bn; £75.5bn; €84.4bn) of investor wealth.
The disappointment stemmed from the concern that the economic package is devoid of any concrete proposal to revive growth in the immediate term.
The extension of the country-wide lockdown and the alarming increase in the number of covid-19 cases also triggered the selloff.
Investor sentiment received another blow when Goldman Sachs predicted that the Indian economy would experience its deepest recession since 1979 and the GDP would shrink 45% in the second quarter.
Safe havens?
Even as investors in general, and NRIs in particular, are concerned about their investments and further scope for losses, advisers are urging them to remain invested and take the current uncertainty as an opportunity.
Krishnan Ramachandran, chief executive of Barjeel Geojit Financial Services, said: “The growth prospects over the coming three-to-five years look quite positive and from that perspective it is recommended that investors, particularly NRIs, start allocation of funds in a phased manner in the Indian markets.
“With low or negative interest rates in most of the developed markets, we are also likely to see more apportionment of monies to successful emerging market economies in the near term and India will certainly be a big beneficiary in this respect.”
In a volatile market, investors are usually clueless about the safest asset classes.
Ramachandran added: “There are no safe asset classes as each asset class carries its own inherent risk and therefore portfolio allocation is based on the risk profile and assessment of the investor.
“The global economy is going through a phase of uncertainty and the demand revival in economic activity across the world will be calibrated according to the business sector and directly linked to the tapering of the covid-19 pandemic.
“India too will follow the same path in terms of its revival to normalcy. However the expectation is that this recovery will be much faster compared to other economies,” he said.
Diversified portfolio
Rahul Singh, chief investment officer, equities, at Tata Asset Management, recommends a strategy of a balanced portfolio of mutual funds.
“The volatility will continue for at least three months. But one should not be scared of it; in fact one should be mentally prepared for it.
“In the past three months the market was down 24%. What I would recommend is that, in terms of what to buy, if there is a correction of 5-10%, a large, midcap and multi-cap category is the best.
“Equity funds behave in sync with the economic cycle and as the economic recovery happens, equity funds will be a better choice.
“One should have a 50-60% allocation into equity, but if the market corrects 10%, he should go up to 70-80%,” he said.
Singh’s recommended strategy for a diversified portfolio is that: “50% should be equity at current valuation, and if the valuation comes down by 10% or so, this 50% should go up to 70%; 15-20% can be in arbitrage funds and liquid funds that would give the opportunity for liquid money in case of a correction; and 15-20% in debt fund, and the last 10% in gold.”
Look for real assets
When the real rates are negative, the possibility is that investors will start looking at real assets like gold.
Thus, most asset managers vote for inclusion of a small portion of gold in the overall portfolios.
“Gold will have lot of investment demand,” said Navneet Munot, executive director and chief investment officer at SBI Funds Management.
“We have already seen in the past few weeks people’s attraction towards gold and it can continue to increase.
“It is one asset class which should have a small allocation. For the past few years, central banks have been large buyers of gold.
“But one should keep in mind that gold is just a hedge in the portfolio, but investors should consider that gold is an asset class which is not productive as it does not earn any return,” Munot added.
Tata AM’s Singh is also of the view that gold will be a good addition to the portfolio to the extent of 10-15% in view of the volatility.
Investors should look at funds which have allocation for gold or gold ETFs, he said.
