From Reflection to Action: Building a Winning Portfolio

As we step into the new financial year, investors find themselves at a crucial juncture, poised to reassess their investment strategies and position themselves for the opportunities and challenges that lie ahead. The onset of a fresh fiscal year marks an opportune moment for investors to reflect on the past year’s performance, realign their portfolios, and set realistic expectations for the future.

A Quick Rewind:

Looking back on the previous fiscal year (FY24), Indian equity markets ended on an optimistic note as investors celebrated the growth momentum and possibility of a return of the incumbent government. The benchmark Nifty recorded impressive returns of over 28 percent, while small- and mid-cap indices saw even higher gains, rising over 60 percent. However, as we enter the new fiscal year amidst optimism, there are a few questions whether FY25 may or may not deliver the same level of rewards for investors.

In the past financial year, certain sectors such as PSUs, Automobiles, Capital Goods, Telecom, and Pharmaceuticals performed exceptionally well. Conversely, Financials, Consumer Stocks, and Commodities underperformed. Therefore, it might be wise to consider booking profits from sectors that have seen a disproportionate allocation in the portfolio and reallocating funds to sectors like Financials as a tactical move.

On the debt side, the previous years have not been particularly favorable. However, there is an expectation of a reversal in the interest rate cycle, which could benefit debt mutual funds, especially long-duration funds, in the future.

Starting Fresh:

Entering into the new financial year offers a chance to assess your portfolio’s performance over the past year. This evaluation helps to assess the asset classes that have exceeded or fallen short of expectations.

The overall performance for equities in 2024 remains robust, with factors such as easing bond yields, a stabilizing China, peaking inflation, and a potentially weaker US dollar contributing to the positive sentiment. However, it’s important to recognize that this financial year (FY25) is laden with important events that could influence the direction of market forces. Assuming a similar trend like FY24 in the markets would be naive, considering the potential impact of key events such as the Indian and US elections, as well as the decisions of global central banks, particularly the US Federal Reserve.

The upcoming Indian elections in April-May 2024 are closely watched by investors. While the market may have already factored in the election outcome, the possibility of some profit booking happening cannot be ignored. However, such corrections could present buying opportunities for equities.

Meanwhile, in the US, the likelihood of a Republican victory under Trump cannot be discounted. Nevertheless, market focus will be on US policies regarding trade with China and geopolitical tensions, which could lead to stabilization or even reduction in oil prices, benefiting equities globally and particularly in India.

With commodity prices stabilizing, a surge in the Consumer Price Index (CPI) in the US is unlikely, potentially paving the way for the anticipated rate cut by the US Federal Reserve. However, the timing of this move remains highly dependent on incoming data points. The Indian rate easing cycle may mirror actions taken by the US Central Bank.

Despite consumption and exports showing signs of weakness, India’s investment environment remains vibrant, thanks to increased government spending. With monetary easing measures implemented globally, it’s anticipated that underperforming sectors will gradually recover. Consequently, the risk to earnings growth for the companies appears minimal.

Actionable for investors?

Taking into considerations the above outlook for FY25, over a period of time, fluctuations in the market can disrupt the balance of assets in your portfolio. Rebalancing allows investors to readjust their investments to align with their desired asset allocation, ensuring that their exposure to risk remains within acceptable boundaries.

For instance, during periods of equity market surges, such as in the previous financial year, the proportion of equities in a portfolio may increase, surpassing the allocation specified by the asset allocation strategy. Consequently, an initial allocation of 50 percent each to equity and debt could shift to 60 percent equity and 40 percent debt due to the market upswing, significantly elevating the portfolio’s risk profile. Therefore, during rebalancing, investors should contemplate reallocating some equity investments to debt to restore the equity allocation to 50 percent.

While gold demonstrated strong performance in the previous financial year, it should not be disregarded. If not already present in the portfolio, it can be considered for inclusion as a risk-diversification measure or ‘hedge’. This is because the geopolitical and economic factors that drove its remarkable ascent remain pertinent.

Market this week

• Indian equity indices surged to fresh record highs during the volatile first week of the new financial year.
• The market experienced mixed global cues, with cautious sentiments stemming from a Fed official’s stance on potential rate cuts, alongside higher yields and escalating crude oil prices.
• Despite these challenges, the RBI’s policy outcome remained in line with expectations.
• Foreign institutional investors (FIIs) offloaded equities worth Rs 3,835.75 crore during the week.
• Notable sectoral performances included a 6.7 percent jump in the Nifty Media index, a 5.3 percent increase in the Nifty Metal index, a 4.2 percent rise in the Nifty PSU Bank index, and a 4 percent uptick in the Nifty Realty index.

Weekly Leaderboard

Stocks that made the news this week:

• Realty stocks surged by up to 6 percent, propelling the Nifty Realty index by 1.7 percent. This spike followed the Reserve Bank of India (RBI) maintaining policy rates at 6.5 percent for the seventh consecutive time, aligning with market forecasts. The RBI’s decision reinforces conducive conditions for prospective homebuyers, bolstering resilience and vigor in the real estate domain.

• On April 5, Marico’s shares surged by 3 percent following positive business updates for the fourth quarter ending in March. The company reported that its international business had resumed double-digit constant currency growth. Additionally, Marico anticipates an upward trend in consolidated revenue for Q4, projecting a low single-digit growth and a return to positive territory after three consecutive quarters.

• Globus Spirits Limited surged following the company’s announcement of a joint venture with ANSA McAL, a Trinidad and Tobago-based brand, aimed at beer production and distribution in India. The partnership, focusing on the Carib beer brand, seeks to capitalize on the combined expertise and resources of both companies to deliver high-quality products and expand market presence within India.