Stick to the India centric consumption stories
Let us talk about the equity side of the market. The big theme in the last five years has been consumption. Every consumption-driven sector like private banking, FMCG, MNCs have outperformed the Nifty by a huge margin over the last five years. That is a theme which is likely to sustain. The reasons are not far to seek. India is growing at over 7% per annum and on a GDP base of $2.65 trillion that is a lot of consumption potential that will be generated. Your portfolio must be relatively heavy on these consumption sectors.
Rural could be the big theme in the next five years
Irrespective of the nature of the government that gets formed post elections, there has to be a big thrust on the rural sector. The BJP has allocated Rs25 trillion for the PM-KISAN scheme whereas the Congress has promised assured income of Rs72,000 per year to every rural household. Either ways, this is going to give a big push to rural consumption. This would include sectors like agricultural inputs, FMCG products, consumer durables, financing products, etc. With the commitment to double farm incomes by 2022, there is going to be a huge bottom-up boost to consumption. Apart from consumption overall, rural thrust will be the other big story to focus on.
Tweak your bond portfolio towards less credit risk
Debt is an essential component of your portfolio and it provides stability and regular returns to your plan. Credit risk was a big game in the last couple of years but after the liquidity crisis, you need to be doubly careful. The credit risk in these bonds is likely to increase with the higher cost of funds that NBFCs are facing today. When it comes to bonds issued by NBFCs, you need to be doubly wary of the credit risk. In fact, the bond strategy must focus more on quality income assets which can also benefit from the dovish rate scenario. Credit opportunity funds are best avoided as the market is not ideal to take on credit risk ahead of elections.
Bottom line is that you must stick to your financial plan
The elections are an event that will come and go. It will not materially alter your long term financial plan. Your long term plan is married to your long term goals like retirement, children’s education, creating a nest egg, etc. Ensure that you don’t make any shifts to your long term plan based on your perception of the election outcome. Over long periods of time we have seen that in India, equity does outperform other asset classes as well as inflation by a margin. What is more, this happens with a much lower risk quotient over the long term. Hence, your best bet is to stick to your financial plan, irrespective of the outcome of the elections. Typically, financial plans are built with inherent defences. For example, the asset allocation is done in such way as to enhance equity allocation when valuations are low and reduce allocations when valuations are high. This automatically ensures that you book profits at higher levels and have sufficient liquidity at lower levels. The discipline of the financial plan is the key to overcoming the noise and volatility surrounding the elections.
The moral of the story is not to attempt too many aggressive shifts ahead of elections. The India story looks set to sustain. A disciplined and systematic approach would work best!