ETMarkets Smart Talk: FY25 Strategy! Deploy 80% of equity allocation through weekly STP over next 8-10 weeks: Kshitiz Mahajan

Q: The Indian market hits fresh record highs in February 2024 with the reaching the 22K mark. As we step into the last month of the financial year, history suggests that the Nifty has given a positive return in 4 out of the last 10 years. Where are markets headed?
A: Indeed, markets have been on a secular bull run for the past four years, and recent numbers, along with the digitalization of financial savings, have further propelled this trend.

Retail participation in equity markets has been increasing steadily, reaching significant levels. In January, almost 46.7 lakh mutual fund folios and 46.84 lakh Demat accounts were opened, providing a substantial boost to equity markets through domestic inflows.

With the upcoming elections, indications point towards India getting a stable government. However, predicting short-term market movements is challenging. Nonetheless, in the long term, we anticipate a robust pace of asset compounding supported by good governance, strong GDP growth rates, and a focus on manufacturing.

Q: GDP data for the March quarter was released last week. What does the data suggest about the overall health of the economy, RBI's outlook on rates, and its impact on markets?
A: The actual performance of the economy has consistently surpassed expectations, with structural transformations underway in both physical and digital infrastructure, along with an inclusive agenda boosting purchasing power. This is a very positive sign for India, as reflected in the revised GDP growth estimate for FY24, now at 7.6%.

The Reserve Bank of India (RBI) has chosen to maintain the status quo on interest rates, keeping the repo rates unchanged at 6.5%, a continuation of its approach aimed at curbing inflation while maintaining economic stability.

Despite concerns about food inflation, core inflation shows signs of softening, prompting a positive market response.

Q: Given that we are trading near record highs, are you fully invested, or have you taken some money off to be deployed later?
A: We are almost fully invested in our portfolios, maintaining 4-6% cash across them. We seek top-ups for investing in undervalued businesses or for tactical buying, ensuring some liquidity for our clients while remaining prepared for opportunities.

Q: How should investors be positioned for FY25, and what should be the ideal asset allocation for individuals aged 30-40 years?
A: Investors should adhere to their asset allocation strategy based on age, risk tolerance, goals, and time horizon. Individuals in the 30-40 age bracket, with no short-term goals, should focus on building emergency funds equivalent to 12-18 months of expenses, followed by an 80% allocation to equities.

Given the current scenario, deploying 80% of the equity allocation through weekly STP over the next 8-10 weeks is advisable, with the remaining allocation to be adjusted post-election, depending on the prevailing conditions. STP/SIP remains the preferred route for investing.

Q: Oil & gas, Energy, and rose more than 30% in the last 3 months. What is driving this rally?
A: These sectors, historically underperforming, are witnessing growth driven by the government's focus on clean energy and the recovery of bad assets, particularly in the PSU space.

However, there is froth in small and micro-cap segments and specific sectors like defense, railways, and PSU banks. Investors should exercise caution, considering valuation metrics and expected earnings rather than following a herd mentality.

Q: Will dividend-paying stocks be a better play to beat volatility in FY25? What percentage of the portfolio should be placed in dividend stocks?
A: Yes, allocating 10-15% of the portfolio to high dividend-paying stocks is advisable. However, investors should prioritize businesses with clean management to avoid losses in share price despite receiving dividends.

Q: What role will debt play in the next few years, and do you foresee debt portfolios gaining popularity in retail and HNI circles?
A: Fixed income is expected to yield capital gains from rate cuts over the next 1-1.5 years, potentially offering double-digit pre-tax returns. Parking debt allocations in gilt/debt funds with a modified duration exceeding 7 years could be lucrative, providing both coupon and capital gains. This differs from fixed deposits, where gains are solely from interest income.

Q: After Lakshadweep, PM Modi indicated deep water tourism. Any particular company(s) that could benefit from the move?
A: We favor companies like ITC and Lemon Tree in our portfolio. Additionally, we are monitoring construction companies, tiles, cement, and FMCG companies for potential benefits from the deep water tourism initiative.

Q: We have seen many SME IPOs hitting D-Street compared to the mainboard so far in 2024. How do you evaluate this trend? Is it a good sign or a sign of caution?
A: We are cautious about this trend due to rich valuations and limited liquidity, especially during market corrections. It's prudent to wait for valuations to normalize before considering investments in SME IPOs.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)