Equities and gold soar in FY 2023: How to strategize for FY 2024?

Finally, real estate also made a comeback after lying low for the last few years. In a rare instance, all four asset classes did well in the FY 2023. Let us discuss the performance of these asset classes in FY 2023, and what should be your portfolio strategy for FY 2024.

Equities

Domestic and international equities had a stellar run in FY 2023. The returns from domestic equities were as follows.

(Source: https://www.niftyindices.com)

The above table shows how the large caps gave good returns of 28.61% (Nifty 50) and 60.39% (Nifty Next 50). However, the broader markets outperformed the large caps. The Nifty Microcap 250 Index was the best performer, with a stellar 85.12% return.

Among the sectoral indices, the Nifty Realty Index was the best performer, with a return of 132.52%. The real estate stocks did well on the back of good sales, lower inventory, better realisations, new project launches, lower debt, etc. The second best-performing sector was auto, with the Nifty Auto Index zooming ahead with 74.94% returns.

Along with India, the US equity markets also rallied. The returns of the three major US indices were as follows.

(Source: Motilal Oswal Mutual Fund)

Note: The above returns are in US Dollar terms.

The tech-heavy NASDAQ led the rally with 38.49% returns, while the broader S&P 500 Index followed with 27.86% returns.

What should you do in FY 2024?

In FY 2023, we saw how the domestic market gave excellent returns, with mid and small caps leading the charge. A repeat of a similar performance is highly unlikely. In FY 2024, you should rebalance your equity portfolio. Due to the outperformance of mid and small caps, their weightage must have increased. So, while doing portfolio rebalancing, you may reduce the exposure to mid and small caps and increase allocation to large caps.

The valuation of large caps is reasonable compared to the higher valuation of mid and small caps. Hence, that may further warrant an increase in the weightage of large caps compared to mid and small caps. Events like elections (in India, the US, and many other economies), high oil prices, high interest rates, risk of Israel – Hamas war spreading, etc., can lead to high volatility and short-term correction. Hence, you should adopt a cautious approach. It is recommended to invest in equity mutual funds through SIP rather than lumpsum.

Fixed income

In the last couple of months, some banks have increased the interest rates on their fixed deposits. Similarly, NBFCs and corporates are offering higher yields on bonds. The yields on Government bonds have also gone up. As of 12th April 2024, the yield on the Indian 10-year G-sec closed at 7.179%. With US inflation rising to 3.5% in March (compared to 3.2% in February and 3.1% in January), the hopes of interest rate cuts have decreased. As of 12th April 2024, the US 10-year treasury bond yields have climbed to 4.518%.

Investors can use this opportunity to benefit from the current high yields. If you are looking to invest in fixed deposits, you can lock into the current high interest rates for FY 2024 and the next couple of years.

Similarly, you can invest in debt mutual funds. You will benefit from the current high accruals. In future, whenever interest rates are cut, there is a potential for capital gains. Indian G-secs will be included in global bond indices in FY 2024. Starting June 2024, Indian G-secs will be included in JP Morgan’s Government Bond Index. It will be followed by the inclusion of India G-secs in the Bloomberg Emerging Market (EM) Local Currency Government Index in January 2025. These events have the potential to drive down yields.

Interest rates and bond prices have an inverse relationship. Whenever the RBI cuts interest rates, the bond prices will rally. An increase in bond prices will lead to an increase in debt fund NAVs, leading to capital gains for you.

Gold

In FY 2023, gold gave good returns of 12%. In FY 2024, gold has already had a good start. From 1st to 12th April 2024, the gold prices have rallied from Rs. 69,471 to Rs. 73,834. The gold prices consistently hit all-time highs in April 2024 and show no signs of cooling off.

Certain events in FY 2024 can keep gold prices at elevated levels. Some of these events include:

1) High buying from central banks like China and others.

2) Risk of Israel – Hamas conflict extending to Iran and other countries in the Middle East.

3) High crude oil prices, with brent crude going above $90 per barrel. High crude oil and other commodity prices can stoke inflation further.

4) Risk of recession in bigger economies, etc.

Along with gold, silver prices have recently had a good run. Besides being a precious metal, silver has a lot of industrial applications that are only increasing as we move ahead.

To benefit from the continued uptrend in gold and silver prices in FY 2024, you may allocate 10-15% of your portfolio to precious metals.

Asset allocation for FY 2024

It is recommended that you follow asset allocation, which includes diversifying your portfolio across asset classes like equity, debt, gold, etc. The allocation to various asset classes can depend on your age, risk profile, investment time horizon, etc.

If you are young, have a higher risk appetite and are investing for long-term financial goals, you may make a higher allocation towards equities. Within equities, in the near term, you may keep a higher allocation towards large caps. As mid and small caps have rallied a lot in the last year, you may keep a lower allocation towards them. 

You may allocate 10-15% each towards precious metals (gold and silver) and fixed income. Different asset classes take turns to outperform each other over the years. Appropriate asset allocation will help you benefit from the outperformance of each asset class. Asset allocation can help you earn better risk-adjusted returns.

Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.

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Published: 23 Apr 2024, 11:33 AM IST