Investors should not ignore gold, fixed income play

Hence, it is essential not to ignore gold and fixed income and not go overboard on equities after the sharp run-up in stocks over the past two years.

Equity markets have corrected sharply, with the Nifty down 15% from its October 2021 peak, while the Nifty Midcap 150 is down 17% in the same period. Valuations have become attractive with the Nifty 50 PE at 20.05 compared with 29.51 a year ago, but fund managers are worried that the high earnings growth of 19% projected for 2022-23 may not materialise.

“We are seeing the impact of inflation and higher input costs on corporate earnings. The markets could remain range bound as they search for equilibrium between valuation and earnings in the context of higher interest rates and inflation respectively,” said Rahul Singh, CIO (equities), Tata Mutual Fund.

As the global economy slows down due to liquidity tightening by central banks, and the war between Russia and Ukraine will keep energy and food prices high, equities could remain range bound and hence fund managers believe investors should be overweight equities.

“First-time investors should stick to their asset allocation and stagger their investments into equity with a bias to large-caps,” said Vineet Nanda, founder, SIFT Capital. Vineet believes such investors could have a 65% allocation to equity, 25% to fixed income in equity and 10% to gold. Financial planners prefer large-caps over mid- and small-caps as such companies can compete better in tough environments.

While many investors stayed away from fixed income over the last couple of years, due to low returns with the 10-year benchmark surging 120 basis points over the last one year, fund managers believe long-term debt investors have a good entry point. Investors can earn as much as 8.08% on a 5-year AAA-rated corporate bond, while a 5-year GSec now yields 7.07%.

“Investors should not ignore debt in their portfolios and could stagger their investments over the next 3-6 months into target maturity funds where there is low cost, liquidity and visibility of returns,” said Niranjan Awasthi, head (product),

Mutual Fund.

Fund managers also believe range-bound gold prices over the last one year present a good opportunity to allocate to gold. A report by UBS Securities points out that gold has gained importance as an investment asset over the years, and is viewed as a good hedge in the event of the US dollar depreciation and against inflation in the short term.