Your strategy must align with your investment timeline and risk tolerance, says Manish Goel of Equentis

Investment and the strategy of investment to earn short-term or long-term gains is a tedious job as it involves selecting a range of investments to align with the investor's financial objectives taking into account their risk tolerance, time horizon, and investment goals. Speaking on the investment strategy, Manish Goel, Founder & Director, Equentis - Research & Ranking, said: “Whether you're in it for the long-term, with a horizon stretching beyond 2-3 years, or short-term—a year—your strategy must align with your investment timeline and risk tolerance.” 

Goel, in an interview with Business Today, elaborated on the types of investment strategies. Like, he said: “The long time horizon will allow the investor to step back and focus on the bigger picture—strong companies, a flourishing economy, and the immense potential for long-term gains. So, selective investments can continue with confidence". 

Some edited excerpts from his interview:

1. What is your view on the current market structure? Should we buy or wait for some more correction?

The market is bolstered by a solid economic foundation and robust domestic demand at the moment, presenting opportunities for significant upside. Our projections for NIFTY EPS growth anticipate a compound annual growth rate (CAGR) of 12-13% from FY24 to FY26. Considering the historical average PE multiples of 20-21x for the market, we can reasonably expect NIFTY to deliver returns ranging from 12-18% within the next year alone.

Although the market looks promising, the significance of a sound investment strategy can never be overemphasized. Whether you're in it for the long-term, with a horizon stretching beyond 2-3 years, or short-term—a year—your strategy must align with your investment timeline and risk tolerance.

The long time horizon will allow the investor to step back and focus on the bigger picture—strong companies, a flourishing economy, and the immense potential for long-term gains. So, selective investments can continue with confidence. However, thanks to the market's current  performance, those with a shorter-term outlook still have reason for
optimism. Essentially, the goal isn't to eliminate all risk but to manage it wisely, which makes personalization paramount.

2. What should be our strategy for mid and smallcaps? Should we trim our exposure to them and add more large caps?

NIFTY may have seen an impressive 22% gain last year, but smaller and mid-sized companies have been the true standouts as their indices surged a staggering 55%. However, since valuations in these segments appear inflated, we
recommend maintaining your current holdings rather than aggressively adding more. The urge to sell before a potential correction might be tempting, but perfectly timing the market is challenging.
Instead of additional purchases for now, one must consider aligning your overall exposure in small and mid-caps to your risk tolerance:

> Aggressive investors: Up to 60% allocation.

> Moderate investors: A 50% allocation.

> Lower-risk investors: Consider a 30-40% allocation.

3. Most positives are already discounted in the market. What could be the next major triggers for the market?
 

India is consistently delivering as a shining macroeconomic landscape, despite external negativity. We can attribute this to strong fundamentals, including a stable government, progressive policies, robust domestic demand, and resilient economic indicators. Healthy corporate earnings, lower corporate debt-to-GDP ratios compared to past years, and a strong banking sector with high credit growth and low non-performing assets are contributing to India’s growth.

Additionally, well-capitalized financial institutions, consistent government spending, manageable inflation, and the potential for interest rate cuts are further contributing to our domestic strength and resilience.

4. When do you expect the Fed to cut rates? Would you say one should focus more on domestic fundamentals and less on the US Fed?

As the US is evidently focused on taming inflation from its current 3% down to the 2% target first, India’s market is buzzing with a potential Fed rate cut cycle starting later this year due to strong GDP growth and a downward trend in CPI. By closely examining these domestic factors, we can make informed investment decisions that capitalize on
India's unique potential.

5. What is your outlook for the domestic economy? How could investors reap the benefit of India's rapid growth?

India has already established itself as the world's fastest-growing large economy, with no competitor to challenge our dominance in the near future. Furthermore, the RBI and IMF predict robust annual GDP growth of at least 7%. In fact, India maintains structural advantages unmatched by any other nation in the next 10-15 years. Globally, many economies face aging populations, but India will remain the youngest for at least the next 35 years.

This young demographic translates to a powerful engine for consumption – a phenomenon we've witnessed historically in the US, Germany, Japan, South Korea, and China.

The government is also actively investing in physical infrastructure – roads, airports, and port efficiency improvements. These initiatives will streamline logistics and solidify India's position as a major manufacturing hub.

Equity markets act as leading indicators of economic changes. While short-term gains of 10-15% might be enticing, a smarter approach lies in the long-term vision. The key is to identify strong companies and invest consistently.

6. Share your views on the IT sector. When do you expect the sector to come out of the gloomy weather?

We’re not anticipating any major disruptions compared to the last quarter, and caution remains the dominant theme, resulting in decision delays. Limited discretionary spending further amplifies this approach, which translates to investor hesitancy. Companies are prioritizing supplier consolidation and cost optimisation strategies to maximize returns on deals. We also don't expect substantial changes in budgeting practices in the near future.

The IT sector's standout performance is driven by optimism surrounding the US market and anticipated improvements in growth. Given this unique situation, we recommend a bottom-up approach to stock selection within the IT sector. Focus on individual companies rather than making broad sector-level decisions.

7. What sectors are you positive about at this juncture?

Businesses catering to "discretionary spending," like restaurants, fashion brands, and entertainment options, will likely flourish. The government's infrastructure push is another exciting development. Companies supplying industrial consumables and capital goods will likely see a significant boost as these projects unfold. In line with government priorities, railways, and defense are receiving particular attention, making stocks in these sectors worth watching.
Furthermore, initiatives like the PLI scheme and Aatmanirbhar Bharat actively encourage domestic manufacturing, fueling our optimism for the manufacturing sector as a whole. While traditional players remain important, we are also positive on select new-age businesses.