Looking to create ‘Crorepati’ portfolio? Allocate up to 60% in equities in FY19

If you are looking to revamp or reshuffle your portfolio in FY19 then do not ignore equities. The S&P BSE Sensex and Nifty50 rose 10-11 percent in FY18 and over 300 stocks more than doubled investors’ wealth.

There might be too many headwinds in the year FY19 both from global and back home but that will give investors an opportunity to buy into quality stocks at attractive valuations. The Indian market has already corrected by about 10 percent from highs recorded earlier in the year 2018.

Markets were trapped in volatility in February and March owing to unsupportive global developments on bond yields, fears of potential trade conflict as well as domestic political uncertainty, suggest experts.

But, if you are planning to rejig your portfolio in light of upcoming headwinds then ignoring large and midcaps might not be the best bet. The idea is to make the portfolio more robust which could withstand volatility emerging not just from India but across the globe.

To safeguard from volatility, analysts suggest investors to stay with defensives and increase weightage in sectors like agri, infrastructure, IT as well as beaten-down pharma stocks. It is also equally important to keep some cash in hand to be deployed on declines.

“We recommend that 50-60% of capital should be parked in large caps, 20-40% in mid & small caps and 10-20% in thematic stocks,” Jagannadham Thunuguntla, Sr. VP and Head of Research (Wealth), Centrum Broking Limited told Moneycontrol.

“Performance of stocks in FY19 will depend on the quality of companies, quality of management, balance sheet performances and profitability. FY19 will not be as easy as FY18 when markets were at an all-time high. The year 2018 will differentiate men from boys,” he said.

Valuations of Indian equities have moderated from the recent highs. The Sensex trades at a 12-month forward P/E of 17.7x, at a 2% premium to its long-period average of 17.3x. The Sensex P/B of 2.6x is at its historical average.

“At the current trailing P/E of 22.8x and forward P/E of 17.7x, we see limited triggers for further re-rating unless accompanied by a boost in earnings,” Motilal Oswal said in a report.

The recent correction from the top does offer a good buying opportunity for investors, but investors should prefer stocks which have “quality with earnings visibility.” The idea is to distribute the portfolio among various market themes.

“On a broader portfolio basis, for a person in the age bracket of 35-40 years the exposure to direct equity should also ideally be around 50-60% while the rest could be spread across other avenues of investments,” JK Jain, head of equity research at Karvy Stock Broking told Moneycontrol.

“One must have major exposure in largecap stocks and should be selective in mid-cap and small-cap stocks. One can also allocate the money in the debt-funds which have seen significant underperformance in the last years and bond yields have factored in the most of the negatives, so debt funds can give better returns for the calendar year 2018,” he said.

Vinod Nair Head Of Research at Geojit Financial Services added that for the next 2 to 3 quarters, 50 to 60 percent of the portfolio should be to defensive stocks and sectors like IT, Pharma, FMCG, Agro, Fertiliser and so on.

“Stable companies with strong balance sheet will be the key to bring an edge to the performance. Growth-oriented stocks like Infra and exports can be considered in the second category. Please have 15 to 20 percent of cash surplus in all time,” he said