The one story that is likely to perform in 2019, irrespective of the election outcome and global cues is the consumption story. Consumption stories like FMCG, private banking, and autos could continue to hog the limelight, irrespective of valuations. These stocks must form part of your core portfolio for 2019. There is already a $35bn farm package on the anvil, and rural demand will be an added booster for the consumption stocks. If this is embellished with handouts to the middle class in the Union Budget, we could well and truly have a consumption boom. This should be the core theme of equity portfolio 2019.
Bet on turnarounds for alpha
When we create a portfolio strategy for 2019, it is as much about alpha (excess returns) as it is about a solid portfolio. Where will the alpha come from? For alpha, you need positive surprises. One can rationally expect alpha from 2 key sources. Firstly, PSU banks are seeing the NPA cycle bottoming out. NCLT recoveries in excess of Rs1tn could be the added kicker. If credit growth sustains, it could be an alpha booster. Secondly, a revival in bank credit is likely to also drive an upturn in the capital cycle, and capital goods stocks could benefit. These could be your dark horses or your alpha bets.
Focus on long dated G-Sec funds for debt
With inflation getting tamed and the Fed likely to be more circumspect on rate hikes, rates could be headed downward. The RBI is already infusing ample liquidity, and that should take care of the short end. Further, the apex bank cut the repo rate by 25bps recently, and hence, we could see a big boost for long-dated bonds. Whether it is bonds or debt funds, try to focus on the long-dated instruments for your debt portfolio.
Gold could be your secret hedge
Normally, gold is kept at a range of 10-15% of any portfolio just as a hedge. Year 2019 may offer you reasons to move your gold exposure closer to the upper end of the range. If the Fed keeps rates flat, the dollar will be weak. This is positive for gold. Secondly, the geopolitical scene is still quite fluid, and that is a classic situation for gold to outperform. Gold touched yearly highs in the Indian and international market. This could be one interesting asset class in 2019.
Stay off high debt and weak corporate governance stocks
What to get out of? If you have stocks that have splurged on debt or are facing corporate governance challenges like disclosure issues, audit qualifications, board level opacity, this is the right time to exit these stocks. Year 2019 is expected to be brutal for stocks that falter on fiscal prudence and corporate governance. Ease them out of your portfolio!