Motilal Oswal Private Wealth says equity portfolio should have a judicious mix of both growth and value stocks

In its flagship report “Alpha Strategist”, MOPW highlights that global economies and financial markets are experiencing winds of change. It anticipates that new economic fundamentals are taking hold, which will dramatically change the growth trends seen over the past 10 years.

The Alpha Strategist report covers the performance analogies of various asset classes during 2013-22 and provides an advisory on the ideal asset mix for wealth creation.

According to it, the corporate debt-to-equity ratio has come down significantly to 0.6 times in the last six years, and bank balance sheets have improved, indicating that the Indian economy will grow to $5-6 trillion in this decade. expected to go.

The trend of healthy corporate earnings growth over the past few years is likely to continue during the decade and should underpin equity market valuations in India, MOPW said.

Read more: What are growth stocks and can their advantages outweigh their drawbacks?

US S&P 500: Lead performer with a CAGR of 15% over the decade 2013-22

MOPW highlighted that the decade 2013-22 belonged to US equities (S&P500), followed by Indian equities (Nifty50) and Developed Markets (MSCI DM).

It added, “US equities (S&P 500) have given a staggering 15 per cent CAGR returns for the last 10-year period, compared to 11.9 per cent and 11.4 per cent for the Nifty 50 and MSCI DM, respectively.” Too much.”

“It shows that US equity returns have outperformed Indian equities by almost 310 basis points CAGR over the last 10 years. Other asset classes like MSCI EM – MSCI Emerging Index INR, Gold – Gold INR, Debt – CRISIL Composite Bond Index , Liquid – CRISIL Liquid Index, and Real Estate – RBI House Price Index have given returns in the range of 6 per cent to 8 per cent CAGR,” the financial firm said.

Read more: What are value stocks and is it wise to invest in them?

Sharing the projections from the perspective of the year 2022, the Alpha Strategist report highlighted that gold was the leading performer as an asset class providing returns of 13.9 per cent. The Liquid Index gave a return of 5.1 per cent, which is better than the Nifty 50’s return of 4.3 per cent.

The outperformer of 2013-22, US equities have given negative returns of 10.7 per cent in 2022.

The MOPW further noted that the conflict in Ukraine and subsequent sanctions on Russia caused major disruptions to global supply chains, along with a rise in fuel and commodity prices, leading to a rise in inflation. In a belligerent effort, the US Fed, along with global central banks, has resorted to raising interest rates at the fastest pace in history. The high cost of capital has resulted in a de-rating of the equity market valuation.

Ashish Shankar, MD & CEO, Motilal Oswal Private Wealth, said, “With interest rates rising, fixed income becomes a very important asset class, and should form a part of the portfolio irrespective of the risk profile.”

Shankar said that, unlike the US, India does not face the same concerns over inflation, so interest rates are likely to peak domestically soon. The yield curve in India has flattened with one year to 10 year G-Sec yields trading in a narrow band of 6.75-7.35 per cent.

“We recommend core allocation to the four-five year maturity segment through high credit quality, target maturity funds, which invest in a combination of G-Secs, State Development Loans (SDLs) and AAA-rated instruments Strategic allocation to select high-yield private credit strategies, MLDs, REITs, and InvITs can help increase yields on fixed-income portfolios. Gold is primarily regarded as a hedge against increased volatility. Must go,” Shankar said.

Shankar highlighted that the last decade was characterized by growth (speed and quality of earnings), but the value style, which typically included cyclical sectors such as financials, capital goods, power and real estate, underperformed.

Shankar added, “There is a possibility that some of these cyclical sectors may outperform over the last decade going forward. However, we recommend that an equity portfolio should have a judicious mix of both investment styles – growth and value Should be.”

Amidst this global chaos, India is experiencing the wind of change which bodes well for the economy and equity markets.

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Investors made good profits by chasing stocks with momentum

Momentum stocks have given strong returns of over 19.9 per cent CAGR, which is much higher than the returns of 16.3 per cent and 15.8 per cent given by quality and low volatility stocks in the last decade.

“This indicates that the last decade belonged to investors chasing momentum stocks. The Nifty 200 gave a return of 13.6 per cent, while value stocks gave the lowest return of 10.3 per cent in the last 10 years,” MOPW said.

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Disclaimer: The views and recommendations expressed in this article are those of the broking firm. These do not represent the views of MintGenie.

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