MUMBAI: Financial year 2020-21 is ending with more hope for investors than when it had started 12 months ago. Heartbeat indices Nifty50 and Sensex are on course to end the financial year with their best performance in a decade with gains exceeding 65 per cent.

The year was like none before, as a pandemic ravaged economies and wiped out jobs across the world. Yet, prompt and large response by policymakers and monetary authorities helped financial markets rise and move faster than the real economy.

The rapid rollout of Covid-19 vaccines and continued government support for the economy and industry have kept investor optimism possibly at their highest levels than at any point in last five years.

While investors have enough reasons to remain sanguine, there are renewed concerns over a second wave of Covid infection in the country and hurdles to overcome in the face of rising inflation and the resultant risk of faster-than-expected normalisation of stimulus measures.

What should be the investment strategy in such an environment? Should it still be ‘overweight’ equities even after Nifty has run up to trade at a PE of 40, way higher than its 10-year average of 19.

We caught up with seasoned young fund managers on Dalal Street on draw a capital allocation plan in the current economic backdrop.

Amit Jeswani, Founder and CIO at Stallion Asset Management

If I had Rs 10 lakh today and my goal was to compound capital at 18-25 per cent annually for next 10 years, then I need to be in companies that will grow at the same rate. I would invest in these four sectors: consumers, financials, technology and pharma.

I would like to invest at least 35 per cent of my portfolio in consumer-centric companies like grocery retail, consumer electronics, branded fast-moving consumer goods companies and quick-service restaurants. Good retailers will manage to grow at least two-three times faster than India’s GDP.

I will put the next 35 per cent of my portfolio in financials. Good financial companies offering lending, protection and savings will grow at 20 per cent for the next decade. If India’s GDP has to grow at 7 per cent going ahead, total lending will have to grow at 15 per cent and good lenders in the space will grow at 20-25 per cent.

The next decade will offer us hyper-scalers in the consumer technology space, which will create monopolies as the majority of them are in the ‘winners take all’ game backed with trust network effects, I would invest 20-30 per cent of my portfolio there.

Finally, I would invest 10 per cent in the pharmaceutical space in a combination of companies in the pathology, hospitals, contract research services to large pharma and contract manufacturing segments, which will all grow at 15-20 per cent on average.

Kanika Agarrwal, co-founder and CIO at Upside AI

If I had Rs 10 lakh to deploy today, I would split up the funds into: 60 per cent to equity, 30 per cent to debt, and 10 per cent to commodities. We use a machine learning-based asset allocation model, and currently, this looks like the optimum split of the portfolio.

Within equities, I would diversify across market caps and geographies. Increasingly, alpha in large caps is disappearing – a Nifty ETF (exchange-traded fund) is the best way to play large caps. For smallcaps and midcaps, there is sufficient alpha available and I would invest in managers with completely different approaches such as technology, momentum, and value.

Diversification can be done along multiple axes and geography is an important one – I would also invest in a US/Europe/Japan/China ETF based on availability.

The debt portion should be a mix of government securities and corporate bonds. Lastly, commodities look interesting, because while historically it has been gold, the basket needs to expand and be redefined as ‘alternatives’. This should include, for example, metals used in electric vehicles (copper, lithium), cryptocurrency, and of course, gold.

Anshul Saigal, CIO at Kotak Portfolio Management Services

As Covid recedes and the stimulus-aided economic recovery takes hold, markets are likely to pivot towards value and Covid reversal plays. The risk of higher rates is likely to temper the valuation premium that growth stocks have enjoyed.

With the economy on a path of sharp recovery, sectors and stocks with high linkage to the business cycle and having high operating leverage are likely to outperform such as autos, infrastructure, building materials and home improvement, consumer durables, capital goods, energy, commodities, and Logistics. In addition, government’s reform push would benefit sectors like chemicals and electronics. Hence, equity portfolios may do well to lean toward these segments.

Gold may act as a hedge against currency depreciation, given that currency has been printed at an unprecedented scale. Since interest rates are expected to trend up in the medium term, it may be prudent to have debt investments leaning toward the shorter end of the yield curve.

Global central banks have treated the Covid situation as war-like emergency and enhanced liquidity in an unprecedented manner. A rising tide raises all boats and this tide of liquidity is likely to raise the economic boat. Investments should be made, keeping this reality in mind.

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