DSP Investment Managers says that current valuations offer an excellent opportunity for staggered investments and is positive on sectors like Banking & Financial Services, Autos & Ancillaries, Healthcare and some construction materials companies, while maintaining a cautious outlook on IT and metals segments. The recommendations are from DSP Investment Managers ‘The Navigator’, an asset allocation tool which would recommend investors every quarter a strategy to deploy their investible surplus and allocate funds among asset classes.
According to it, auto is one of the few sectors with limited earnings downgrade risk and potential re-rating because the easing of steel prices bodes well for the margins at a time when demand is gradually recovering. The pharmaceutical space too offers opportunities because of lower valuations and the evolving healthcare landscape. Equity market valuations are not frothy and appear to be at a comfortable level after nearly 18 months. The NIFTY valuations are now at a sweet spot where they offer good potential returns. Nearly half of the NSE500 stocks have corrected by over 30%, indicating lower valuation froth and selective opportunities. Only 20% of NSE500 stocks are trading above their 200-day moving average prices compared to a long-term average of 50%.
The Navigator suggests it is potentially a good time to buy businesses benefitting from domestic growth. It recommends that investors with a Conservative Strategy allocate 20% of their portfolio in equity, 15% to Alternate & Hybrid funds, and the remaining 65% to the debt segment. Those with a Moderate Strategy must invest 50% in equity, 10% in Alternate & Hybrid and 40% in debt. Lastly, investors with an Aggressive Strategy must allocate 60% to equity, 15% to Alternate & Hybrid and 25% to debt.