Opportunities in uncertainty: Motilal Oswal explains how to invest in 2025

The medium-term outlook for Indian equities remains positive. Fixed income strategies should focus on accrual and high-yield investments, while gold and real estate show positive growth prospects.

 Indian markets are expected to remain volatile in the first half of 2025 due to several global and domestic events, including the new Trump administration’s policies, China’s measures to counter trade tariffs and its possible implications for EM currencies, and the upcoming Indian Union budget, and investors should adopt a 'hybrid approach' in the first half of calendar year 2025, according Motilal Oswal Private Wealth (MOPW), the wealth management arm of brokerage Motilal Oswal.   MOPW recommends ncreasing equity allocations in the medium term, particularly through Hybrid Equity-Oriented Funds or pure equity strategies, especially during market corrections. In fixed income, focus on accrual and high-yield strategies, allocating 40%-50% to performing credit, private credit, and infrastructure investment trusts (InvITs), and 15%-20% to actively managed duration funds. For tax-efficient solutions, invest 20%-25% in Conservative Equity Savings Funds. Additionally, consider 15%-20% in alternative strategies like arbitrage funds and floating-rate funds. Gold remains a strong investment due to global trends and potential INR depreciation, while real estate, especially commercial properties, shows promising growth.

 

 

Despite the recent slowdown in GDP, MOPW remains optimistic about India’s growth due to its macroeconomic stability, supported by significant foreign exchange reserves and a regulated twin deficit. It expects GDP growth to improve compared to the modest growth reported in Q2 FY25.

 

" 2025 will bring its share of uncertainty as the new US president gets sworn in. After years of good performance the US markets also looks tired. This calls for moderation in expectations and a sharp focus on risk management through asset allocation.

 

MOPW recommends closely monitoring the upcoming earnings season and GDP growth trajectory.. We expect this trend to reverse and expect large caps to do better this year given the valuation comfort. In the longer term, earning growth and stock returns should converge. Considering this, it seems small cap stocks have run up way ahead of earnings growth in most of the segments. MOPW expects this trend to reverse and large caps to do better this year given the valuation comfort," said Ashish Shanker, MD & CEO of MOPW.

 

With investment charter and asset allocation remaining the anchor for the long-term, here is MOPW's view and recommended strategies across equity, fixed-income, gold, and real estate.

 

Portfolio Strategy

 

1) Equity Outlook: Despite potential short-term volatility, the medium-term outlook for Indian equities remains positive. This optimism is driven by several factors, including:

 

• India's stable macroeconomic environment, characterised by controlled fiscal and current account deficits.
• Likely increase in Govt spending in the medium term
• Improving liquidity conditions and monetary stimulus by RBI
• Continued growth in domestic investments, primarily channelled through mutual funds and systematic investment plans (SIPs), which are mitigating the impact of foreign institutional investor (FII) outflows.
• Expectation of strong corporate earnings growth in FY26 and FY27, despite flat growth projected for FY25.

 

According to MOPW, considering the recent corrections, if equity allocation is lower than desired levels, investors can increase their allocation by implementing a lump-sum investment strategy for a Hybrid Equity-Oriented Fund and a staggered approach over the next 6 months for pure equity-oriented strategies, with accelerated deployment in the event of a meaningful correction.

 

2)     Fixed Income Outlook: The fixed income market in India is expected to be relatively stable due to moderate GDP growth and inflation remaining within the targeted range. However, as a significant portion of the potential decline in yields has already occurred, investors should focus on specific strategies within fixed income—an overweight position in accrual and high-yield strategies while remaining neutral on duration.

 

Portfolio allocation guidance:

 

• Duration strategies: Allocate 15%–20% of the fixed income portfolio to actively managed duration funds or long-term (15–30-year maturity) G-sec papers/funds.
• Accrual strategies: Invest 40%–50% of the portfolio in performing credit and private credit strategies, infrastructure investment trusts (InvITs), and select non-convertible debentures (NCDs).
• For tax efficient fixed income alternative solutions, 20% - 25% of the portfolio may be allocated in Conservative Equity Savings funds (minimum 3 years holding period)
• Other Alternatives: The remaining 15%–20% can be allocated to arbitrage funds, floating-rate funds, and absolute return long/short strategies with appropriate holding periods.

 

3)     Gold Outlook: The outlook for precious metals, particularly gold, is positive. This positive outlook is supported by several factors, including:

 

• Declining USD share in global reserves: The share of the US dollar in global reserve currencies has been on downtrend over last 10 years and is likely to continue.
• Central Bank buying: Continued purchases of gold by central banks amidst rising geopolitical uncertainties are also driving demand for gold.
• Rupee depreciation: Potential depreciation of the Indian Rupee (INR) against the US dollar is likely to make gold more expensive in INR terms, further supporting its price.

Real Estate Outlook: The real estate sector is showing positive signs, particularly in the commercial segment.  India's office space vacancy rate has fallen to 17.1%, its lowest since 2020, due to heightened corporate demand and low new supply while rents have crossed the pre-covid levels.

 

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