Time to invest in a balanced approach with a mix of equity & debt in the ratio of 60:40

The broad market went up by 8% in October and November and got choppy. We will have a rough session in the near future, while the final direction will depend on the global trend, which is also getting choppy near the US Fed December policy meeting.

Recent strong economic data like retail sales and employment are suppressing the thought that policy will become less hawkish. This will have an implication on the market view and affect the trend in November, December, and January.

Regarding the domestic market, two sectors in the limelight where PSBs & Auto. Recently, the attention and queries from investors to invest in public sector banks reached a peak. The broad PSB index is up by 30% in a month.

Good growth in profit after tax (PAT) in Q2 results, high provision coverage, and improvements in asset quality triggered a rally. The combined net profit of 12 PSBs is up by 50% on a YoY basis to Rs 25,685 crore.

Importantly, the deep discount in the valuation of PSBs compared to Private banks led to the arbitrage opportunity. Undoubtedly, the balance sheet has improved, and GNPA (Gross Non-Performing Assets) have more than halved from the peak of 14.6% in FY18. In a quarter, the P/B ratio of PSU increased from 0.5x to 0.9x.

As a result, the valuation disparity has rapidly narrowed, limiting the upside in the short to medium term. Pvt banks are a better choice to invest on a long-term basis considering their outperformance in terms of both business and valuation.

Auto sector stock performance has got choppy after the October volume and Q2 result data. It is an interest rate-sensitive sector. Today, the rates are not high in India but will be a point of concern if it continues to rise, which is possible.

Financially, the industry’s revival is expected to continue in the second half of FY23 due to pent-up demand and low base despite a minor semiconductor shortage, but valuations have gotten elevated.

A major challenge is in the two-wheeler segment, where the average cost of a vehicle has grown significantly, keeping the rural economy aloof due to lack of affordability and currency fluctuation affecting exports.

The transition to EV will play a major role in 4W & 2W going forward, about which a clear direction is yet determined. Broadly, we are positive on the CVs segment, neutral on the passenger segment and cautious on 2W. We are choosy about the sector with a stock-specific approach.

Generally, we feel that the Indian stock market will be better in 2023 compared to 2022. However, a point of concern is the extreme premium valuation of India compared to the rest of the world.

For example, Nifty50 is at a 20% premium to S&P500, a historical peak. And MSCI India is at 100% premium to MSCI EM.

The resilience of the market will be tested as developed & EMs have become dirt cheap and the worst of the economic downturn is over.

The ongoing bounce of the global market may help others markets more than India in the short to medium term. Investors will have to be choosy about stocks & sectors and at what price they are buying.

A balanced approach with a mix of equity & debt, 60:40 for an average risk-averse investor, is advised as interest yields are becoming attractive & economy is slowing.

(Disclaimer: The author is Head of Research at .
Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)