The Indian equity and debt markets have recently witnessed heightened volatility on account of recent credit rating downgrades, concerns about the financial health of the NBFC sector and the sharp rupee devaluation against the US dollar. As investors search for cues, Edelweiss Global Wealth Management has come out with its own prognosis on the situation. It also gives its outlook on equity, debt and alternative asset classes. Read on to know more.
With elections around the corner, volatility is expected to increase. Global headwinds (trade war rhetoric etc.) continue to weigh in on all emerging markets. The government and the central bank have several fiscal and monetary tools available to address the current volatility. They have also clarified that they are willing to act swiftly if required to stabilize both equity and debt markets.
“While we remain constructive on India over the long term, we recommend investors to exercise caution in the immediate future. The section below outlines our view across Equity, Debt and Alternate holdings in your portfolio,” said Edelweiss Global Wealth Management.
Asset Class Strategy
Equity – De-leverage, protect gains/capital and avoid small/midcaps is the key message on the equity side. Edelweiss Global Wealth Management said that investors should de-leverage by selling worst quality exposure. Focus on businesses which can deliver earnings growth with strong balance sheets.
In terms of protecting gains and capital, the firm said investors should consider locking profits and switching to capital protection – quality allocations may correct during market corrections. It warned against any addition to mid and small caps (either directly or through managed solutions).
Also, investors have been advised to realign portfolio through allocations in capital protected structured products, long/short strategies, and large-cap MFs/PMS/AIFs.
Debt – Edelweiss Global Wealth Management has asked investors to review exposure to corporate bonds, MFs with significant corporate bond exposures.
“Selectively exit from ‘Credit Risk Fund’ category: We believe that returns in the category will stay challenged in the rising interest rate and uncertain credit environment, and is not commensurate to the risk,” it said.
The firm is also against any incremental exposure to duration. It has asked investors to realign portfolio through allocations in Buy & Hold Strategies like AAA oriented FMPs, Structured Products, and AAA Roll down strategies.
Alternates – In this niche asset category, investors have been asked by Edelweiss Global Wealth Management to retain liquidity to meet drawdown obligations over the next 12-18 months. “We prefer long-term allocations focused on quality infrastructure yield assets and stressed assets,” it said.