Title: Investment Climate Toughens Amid Israel-Hamas Conflict, But Domestic Investors Remain Upbeat
With the recent escalation of the Israel-Hamas conflict, the investment climate has become even more challenging. However, domestic investors in India have shown optimism, as record mutual fund SIP (Systematic Investment Plan) accounts reached an all-time high in September. To shed light on potential investment opportunities, Business Insider India spoke to Chintan Haria, the head of investment strategy at ICICI Prudential AMC.
Large Caps Remain Crucial in Investment Portfolios
Despite recent lower returns from large cap funds compared to mid and small caps, Haria notes that large caps play a vital role in portfolios. These companies exhibit strong corporate governance principles, financial stability, and solid business models. Due to their inherent stability, large caps can provide consistent returns with relatively less volatility. Haria suggests considering large cap oriented passive offerings, such as index funds or ETFs, which replicate underlying indices and have minimal associated expenses.
Sectoral and Thematic Funds: Timing and Potential Themes
When investing in sectoral or thematic funds, investors may experience extreme outcomes depending on economic conditions. Haria believes that the banking sector holds growth potential as the economy expands. Another promising theme is healthcare, given the rise in income, increased spending on healthcare, and growing awareness. While the banking sector was previously considered cyclical, private banks have effectively de-risked their business models in recent years.
Bank ETFs: Safe Cyclical Bets in India?
Haria asserts that banks in India are in good health, thanks to measures like the Insolvency and Bankruptcy Code. The Non-Performing Assets (NPA) cycle is behind them, and consolidation has strengthened the sector. While the banking industry remains affected by economic cycles, subsidiaries like insurance, broking, and asset management companies contribute significantly to large banks’ portfolio value, providing relative strength.
Investing amidst Geopolitical Unrest: The Appeal of Gold
During times of geopolitical unrest, investors often seek safe haven assets like gold. Gold acts as a hedge against economic volatility and instability, offering liquidity and protection against inflation or uncertain political conditions. Moreover, gold exhibits a low correlation with other financial instruments, making it valuable for portfolio diversification and risk mitigation. Factors such as rising oil costs and global inflation may further drive the rally in gold prices, complemented by quantitative tightening measures implemented by central banks worldwide.
Building a Balanced Portfolio Using Passive Offerings
Achieving a balanced portfolio begins with asset allocation. Haria advises seeking assistance from a financial advisor if unsure. For equity exposure, various offerings based on market capitalization, smart beta/factor, sectoral, or thematic strategies are available. In terms of debt allocation, liquid ETFs serve short-term needs, while 5-year or 10-year GSec ETFs are suitable for long-term allocation. Commodity exposure can be achieved through gold and silver ETFs.
Exploring Factor Investing: How It Works
Factor investing, also known as smart beta ETFs, combines the benefits of passive and active management to deliver superior risk-adjusted returns. This investment strategy relies on a set of predetermined rules to track an index, maintaining a passive approach. However, the investment style becomes rule-based as it targets specific variables, eliminating human bias. Momentum is one example of a factor within the factor investing universe.
In a challenging investment climate, as geopolitical tensions persist, Haria’s insights provide valuable guidance for investors seeking stability and growth in their portfolios.
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