How to reallocate your portfolio as Covid returns

By Indiatimes3 days ago

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Instead of being extremely overweight in the staple space, we have moved down to an equal weight position and have gone overweight in consumer discretionaries which includes auto. We have also moved out of midcap banks, says Manish Sonthalia, Associate Director, Fund Manager AIF & PMS, Motilal Oswal AMC

What is your market view? Are we in for a pause, are we in for a retreat or will this market continue to climb the wall of worry?Volatility will be there but the direction of the markets is clearly on the upside. It is a buy-on-dips market on the back of very strong earnings expectations for Q4 and the whole of FY22, even extending into FY23. The confidence comes in with vaccination now being in full swing. We are fearing a second wave right now. But that could be temporary. We could see a spike for a month or two in the number of Covid cases but otherwise, the economy is reviving very well and it is likely to continue. According to me it is a bullish market even now.

You have Eicher, Maruti, HDFC Life and HDFC Bank in your portfolio. Have you changed your orientation given that the current orientation of the market is tilted towards cyclicals and industrials?We have been very overweight on the consumer space for many years now and within that space, given that it is going to be a very strong economic recovery -- the TINA factor (there is no alternative) applies to the consumer space and particularly the staple space. All these years, market caps of these stocks increased irrespective of whether earnings came through or PE multiples expanded.

I do not think that thing can continue now with the full blown economic recovery. There will be a rotation trade. So basically the cyclical sectors, the sectors which are very strongly correlated to the economy, are going to do much better. Funds would move out of staples which have given very healthy returns. They could be in for some time consolidation given the valuation. In that aspect we have reduced our allocations to the consumer space. Instead of being extremely overweight in the staple space, we have moved down to an equal weight position.

On the other hand, because consumers are likely to spend more on discretionary items, we are overweight on the consumer discretionary range and this would include automobiles. On the industrial side, we have again gone overweight as we expect full-blown economic recovery. The Budget had allocations for capital formation which had been missing in India over the last 10 years ever since The Global Financial Crisis. The full-blown impact of this is going to be seen within the next four to six quarters. But this is definitely one trade which would likely play out favourably.

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