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Sector allocations for a correction-proof portfolio

As benchmark indices declined four per cent over the past one month, Devang Mehta of Centrum Wealth and Varun Lohchab of HDFC Securities decode investment strategies to ride the on-going correction

Topics
Markets | Investment | market corrections

Puneet Wadhwa & Nikita Vashisht  |  New Delhi 

The bull-run, which began in March 2020, is beginning to plateau. Over the past one month, the BSE Sensex index has declined four per cent while the Nifty50 has slipped three per cent.

But, investors should not panic at the moment, as the correction has come on the back of over 30 per cent returns, delivered by frontline indices over the past one year.

In the broader markets, the returns have been up to 76 per cent during this period.

While global headwinds and rich valuations are the key triggers for the on-going profit-booking, the outlook for Indian remain healthy on a broad basis.

According to Devang Mehta, head of Equity Advisory at Centrum Wealth, the Indian economy remains on a strong footing and investors should use the correction dip in prices to add quality names to their portfolio. Here’s what he suggests.

Varun Lohchab, Institutional Research Analyst at HDFC Securities, meanwhile, believes the best way to tackle is to remain stock and sector specific.

He suggests sticking to large-cap IT, banks, gas and insurance-related stocks.

Besides, the brokerage is underweight on consumption (staples, discretionary and autos), NBFCs and small banks.

That said, gradual market correction may continue over the near-term as possibility of sooner-than-expected interest rate hike makes investors risk averse.

Recently released minutes of the US Federal Reserve’s November meeting showed that policymakers are concerned about inflation and are willing to raise interest rates if prices keep rising.

“Various participants noted that the FOMC should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run higher than levels consistent with the FOMC’s objectives,” says Philip Marey, senior US strategist, Rabobank International.

The minutes stated that various participants agreed that the Federal Open Market Committee (US Fed) should be prepared to adjust the pace of asset purchases and raise the target range for the federal funds rate sooner than participants currently anticipated if inflation continued to run higher than levels consistent with the Committee’s objectives.

“Although on November 3 the FOMC finally announced a fixed monthly taper schedule that would make the Fed well-positioned to address a range of possible outcomes according to Powell, the taper schedule is rapidly turning into a straightjacket, preventing the FOMC from hiking in time in response to inflation. Consequently, we are likely to see an increase in the pace of tapering at the December meeting,” says Philip Marey, senior US strategist, Rabobank International. He believes that the taper schedule is rapidly turning into a straightjacket, preventing the FOMC from hiking in time in response to inflation. Consequently, the are likely to see an increase in the pace of tapering at the December meeting.

Therefore, global markets’ reactions to these developments, along with stock-specific flow and FII activity, will guide the domestic equity markets on Friday.

That apart, Tarsons Producst will debut on the bourses today where grey market trends suggest a 20-30 per cent listing gain.

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First Published: Fri, November 26 2021. 08:00 IST
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