Where to Invest in 2023

If you stick to your asset allocation dharma and remain disciplined, you will see better returns on your portfolio in the long run.

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By Nilesh Shah

Freepik

This story appears in the January 2023 issue of Entrepreneur India. Subscribe »

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The markets are at all-time highs and the volatility has increased. It's not fair to expect the market to continue playing like Surya Kumar Yadav. Indian markets may not be expensive based on historical averages, but they are 86% more expensive than other emerging markets, compared to a long-term average of 40%.

If markets have to maintain this, corporations will have to deliver on expectations. This is not the market where you should be leveraged, this is not the market where you can be overweight on equity as an asset class. In case the markets correct from here, one can use this as an opportunity to increase allocation. Now, you won't increase allocation at one go because there are lots of uncertainties, but whenever correction happens, you keep on increasing your overweight position in a very gradual and calibrated manner.

Asset allocation is the call of the day. When I started my career, I had a mentor who taught me that just like there's a full moon and then no moon as part of the natural cycle, there will always be ups and downs in the market. So, it's important to stay disciplined in your investments and not get too caught up in the highs and lows. If you stick to your asset allocation dharma and remain disciplined, you will see better returns on your portfolio in the long run. With RBI forecasts inflation to moderate and we may be moving towards the end of the rising interest rate cycle, under such a scenario, one can consider taking exposure to fixed income products from a short to medium-term perspective. There are many debt mutual funds which can be suitable for investors as per their investment horizon.

Hybrid funds are also a good option for someone who doesn't want to leave the equity potential and yet wants a soft landing in case of correction. There are a variety of hybrid funds with varying degrees of risk. Debt hybrid funds invest 10-25% in equity and rest in debt, equity savings invest 10-50% in equity and rest in debt & arbitrage and Balanced Advantage Funds generally invest between 20-80% dynamically in equity depending on market valuations.

Another good option to diversify investment now is silver & gold which provides investors with an opportunity to hedge against the ongoing economic uncertainties and geopolitical risks prevalent across several major global economies. Buying these through ETFs is easier and safer than buying it in its physical form. It provides easy liquidity and the flexibility to invest in smaller quantities. Furthermore, it offers lower transaction costs than physical units while delivering the market equivalent price of the metal.

In the last three decades, we have built a strong foundation for India's economy. We were once a small player in the global economy, but now we are a driving force. In 2021, we were the fastest-growing major economy in the world and we are projected to maintain this growth in the next two years. Markets should reflect this long-term growth of the economy. Earnings would improve as the economy grows, and this could cause markets to rise in the long run. There will be ups and downs along the way, but if we look at where the market will be 25 years from now, it is clear that it will be much higher than it is today. Therefore, I still believe equities will continue to outperform other asset classes if investors look at it from a five-year plus perspective and remember to keep faith in the long-term story.

Nilesh Shah

MD, Kotak Mutual Fund

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