Axis recommends diverse multi-asset portfolios for optimal risk management

In a recent note, Axis Securities sees equities starting off on a positive note but anticipates a volatile path ahead, with macroeconomic factors continuing to dominate the stage. The brokerage firm underscores that while the initial momentum is promising, ongoing global uncertainties and domestic economic conditions could introduce fluctuations.

To safeguard against market volatility and sudden downturns, Axis recommends constructing a diversified portfolio for investors of various risk appetite that spans multiple asset classes. This approach typically includes allocations to traditional assets like equities and fixed-income instruments, as well as alternative investments such as gold and other commodities. The brokerage is overweight on Equities while having ‘neutral’ calls on fixed-income assets and Gold.

For conservative investors, Axis Securities recommends allocating 20 percent of their portfolio to equities, with a larger portion, 70 percent, allocated to debt instruments and 10 percent to gold. This allocation strategy aims to prioritize stability and income generation while providing a hedge against inflation through gold investments. On the other hand, for growth-oriented and aggressive investors, Axis Securities suggests a higher allocation to equities, with 70 percent and 90 percent of the portfolio, respectively.

This approach reflects a higher risk tolerance and aims to capitalize on the growth potential of equities over the long term. By tailoring asset allocations based on risk profile and investment objectives, investors can align their portfolios with their financial goals while managing risk effectively in different market conditions.

Here’s what it recommends:

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Asset allocation strategy by Axis

Equities: The brokerage anticipates that market dynamics in the near term will pivot around prevailing narratives. Key drivers include the sentiment surrounding policy continuity, anticipation ahead of the Budget, the progress of the monsoon, advancements in the CAPEX agenda, fiscal consolidation efforts, and expectations for rural economic recovery in the latter half of the year. These factors are poised to shape investor sentiment and market direction, influencing investment decisions and market outcomes in the coming months.

In view of recent developments, the brokerage foresees that style and sector rotation will be pivotal for generating alpha in the foreseeable future. Despite the robust performance of Midcaps and Smallcaps in recent months, the brokerage believes that the margin of safety, particularly in terms of valuations at current levels, has diminished compared to Largecaps. As a result, certain segments of the broader market may experience a period of consolidation in the near term, with flows potentially shifting toward Largecaps.

Based on this, Axis sees Nifty 50 at a new high in the near term. In our base case, we roll over the Nifty target to Mar’25 to 24,600 by valuing it at 20x on Mar’26 earnings. Hence, it recommends investors remain invested in the market and maintain good liquidity (10 percent) to use any dips in a phased manner and build a position in high-quality companies (where the earnings visibility is quite high) with an investment horizon of 12-18 months.

Fixed income: In its June 2024 MPC meeting, the RBI opted for a status quo by maintaining the policy rate at 6.5%. The central bank reiterated its stance on gradually withdrawing accommodation while balancing growth and inflation dynamics. Governor Shaktikanta Das highlighted the Indian economy’s resilience, citing improved urban demand and positive trends in high-frequency indicators. Moreover, the RBI revised upward its FY25 GDP forecast to 7.2%, underscoring robust prospects driven by manufacturing strength, construction sector recovery, and rural segment resurgence. These factors are expected to bolster household consumption in the coming months, noted Axis.

Looking ahead, it anticipates a flattening yield curve in FY25, with shorter-end yields likely to rise relative to higher-end yields amid policy normalization, inflationary pressures, and volatile oil prices. Given this outlook, the brokerage recommends a quality-focused bond strategy with selective exposure to non-AAA-rated bonds based on risk appetite.

Gold: The brokerage noted that Gold has stood out as a top performer in 2024, with prices surging 14% in INR terms and notable gains in USD as well. Over the past three months, gold prices have risen steadily, reflecting positive momentum and hitting above $2425/oz. This rally has been fueled by expectations of a rate-cut cycle, heightened geopolitical tensions, central bank purchases, and increased volatility in equity markets, it stated. The metal’s outperformance in 2022 and 2023 seems to be repeating this year. Looking ahead, gold’s prospects remain strong, supported by its inverse correlation with bond yields and favorable macroeconomic conditions, as per Axis. Given these factors, it maintains a NEUTRAL stance on Gold and recommends a strategy of ‘Buy-on-Dips’.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 17 Jun 2024, 02:15 PM IST

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