DSP Investment Managers says that current valuations offer an excellent opportunity for staggered investments and is positive on sectors like Banking & Financial Services, Autos & Ancillaries, Healthcare and some construction materials companies, while maintaining a cautious outlook on IT and metals segments.
The recommendations are from DSP Investment Managers â€˜The Navigatorâ€™, an asset allocation tool which would recommend investors every quarter a strategy to deploy their investible surplus and allocate funds among asset classes.
â€œThe Navigatorâ€ studies and analyses market conditions, with a detailed take on drivers of returns, including valuations, growth, across asset classes. According to The Navigator, auto is one of the few sectors with limited earnings downgrade risk and potential re-rating because the easing of steel prices bodes well for the margins at a time when demand is gradually recovering. The pharmaceutical space too offers opportunities because of lower valuations and the evolving healthcare landscape.
Equity market valuations are not frothy and appear to be at a comfortable level after nearly 18 months. The current valuations offer an excellent opportunity for staggered investments.
The NIFTY valuations are now at a sweet spot where they offer good potential returns. The valuation froth that emerged from post-Covid earnings revival and ultra-low interest rates is now reversing and making valuation-based investing a reasonable proposition.
Nearly half of the NSE500 stocks have corrected by over 30%, indicating a lower valuation froth and selective opportunities. That makes the broader market appear attractive for a stock selection-approach investing. Only 20% of NSE500 stocks are trading above their 200-day moving average prices compared to a long-term average of 50%. In the past, indices have usually turned higher at such points.
Global and domestic economic prospects are diverse; domestic growth looks strong while global growth is weakening. In that backdrop, valuations play a critical role when making investment decisions. The Navigator suggests it is potentially a good time to buy businesses benefitting from domestic growth. On the debt side, the preference is to hold shorter end maturity papers and low duration bonds for the time being, since the expectation of rate hikes exists.
The Navigator recommends that investors with a Conservative Strategy allocate 20% of their portfolio in equity, 15% to Alternate & Hybrid funds, and the remaining 65% to the debt segment. Those with a Moderate Strategy must invest 50% in equity, 10% in Alternate & Hybrid and 40% in debt. Lastly, investors with an Aggressive Strategy must allocate 60% to equity, 15% to Alternate & Hybrid and 25% to debt.