Asset allocation during West Asia crisis: Mutual fund managers share investment tips amid market turbulence

Synopsis Geopolitical tensions in West Asia are causing stock markets to fall. Experts suggest this is a short-term correction. Investors can use this opportunity to increase equity allocation, especially in mid- and small-caps, over the next few months. Domestic cyclicals and defensives are favoured sectors. Gold remains a safe haven, though moderate returns are expected. The ongoing conflict in West Asia has sent stock markets tumbling again. The overhang of uncertainty leaves investors in a quandary. ET Wealth spoke to five mutual fund experts for their views on the market scenario and what investors should do now. Shridatta Bhandwaldar CIO-Equities, Canara Robeco AMC Volatility to persist for longer? History suggests that most of these geopolitical events, though meaningful, do not last long. We expect it to be a shortterm correction. Time to increase equity allocation? Equity investors should use the opportunity to increase their allocation, given better entry points at lower valuations. However, assess your risk appetite and goals before investing. Invest in mid- and small-caps? The earnings-valuation context has improved for mid- and small-cap stocks. Valuations, while rich, are no longer in the exuberant zone. One may choose to start allocating here over the next 3-6 months with a 2-3-year view. Themes and sectors to favour, or avoid? Domestic cyclicals over global ones. Discretionary consumption (auto/auto ancillaries, consumer tech, retail), financial services, and select industrial themes, along with defensives like pharmaceuticals and telecom. We are currently less constructive on IT, metals, oil & gas, and FMCG. Gold still a safe haven? Gold can act as an insurance against geopolitical or economic uncertainties. One should continue to have a well-defined asset allocation to this asset class. However, return expectations should be moderate given the rally in the last 2 years. Trideep Bhattacharya President & CIO-Equities,Edelweiss MF Volatility to persist for longer? Equity markets tend to price in such uncertainties quickly. Typically, the bulk of the adjustment occurs within the first few weeks. We expect market conditions to stabilise as clarity emerges. Time to increase equity allocation? Asset allocation should be guided by an investor’s risk tolerance, time horizon, and return expectations, ideally determined with financial advisers. Investors may consider increasing equity exposure gradually over the next 3-6 months. Invest in mid- and small-caps? India’s bottom-up earnings outlook has improved meaningfully. Given the near-term deterioration in global macro conditions, a measured approach is warranted. We remain constructive on mid-caps and selective in small-caps, recommending a staggered investment approach over the next 6-9 months. Themes and sectors to favour, or avoid? Investors should exercise caution when investing in companies with weak competitive moats and limited pricing power. Such businesses are typically more vulnerable to input cost shocks and margin pressures, making them relatively less resilient. Gold still a safe haven? Gold has historically served as an effective hedge against global instability. However, investors should maintain discipline around their strategic asset allocation across equities, debt, precious metals, and real assets to navigate market cycles effectively. Harish Krishnan CIO-Equity, Aditya Birla Sun Life AMC Volatility to persist for longer? These reactions are temporary, as markets refocus on earnings growth, liquidity, and domestic demand. India’s macroeconomic momentum remains resilient, helping markets stabilise over time. Time to increase equity allocation? Market volatility has often presented opportunities rather than risks for longterm investors. Investors should maintain diversification and use dips to gradually increase exposure, rather than trying to time the market. Invest in mid- and small-caps? Despite the recent market drawdown, small- and mid-cap valuations remain relatively elevated compared to their historical average. A flexi-cap fund with diversified exposure across market caps may be more prudent in the current environment. Themes and sectors to favour, or avoid? Avoid businesses that require constant access to capital to satisfy growth aspirations, as well as pockets of the broader market where valuations are stretched. Large-cap companies may offer relatively better risk-reward. Gold still a safe haven? Ongoing tensions are expected to support safehaven demand and embed a risk premium in gold prices. However, the nearterm price movements may remain volatile due to factors such as a stronger US dollar, elevated bond yields and shifting expectations around US Federal Reserve rate cuts. Sorbh Gupta Head-Equity, Bajaj Finserv AMC Volatility to persist for longer? Once the initial shock settles, markets gradually refocus on fundamentals. As this happens, they tend to recalibrate in line with evolving macroeconomic and corporate realities, unless fresh negative developments emerge. Time to increase equity allocation? While corrections often present entry points, a disciplined and balanced approach is essential. Largecap stocks offer relatively better valuation comfort and stability. Multi-asset funds serve as effective shock absorbers. Invest in mid- and small-caps? Earnings growth is improving, but stock prices haven’t fully reflected it due to geopolitical concerns. As clarity emerges on capital flows and the US–Iran conflict, this sentiment gap should narrow. Focus on quality businesses with strong balance sheets and durable growth. Themes and sectors to favour, or avoid? We remain underweight on Information Technology (IT) given its strong export orientation. Additionally, the rapid proliferation of Artificial Intelligence (AI) is creating uncertainty around the trajectory of demand for Indian IT services. Gold still a safe haven? Gold is a good insurance against anything going wrong around the world, such as currency volatility or financial market stress. It continues to serve as a useful diversification allocation within a well-balanced portfolio. Vetri Subramaniam MD and CEO, UTI AMC Volatility to persist for longer? Volatility will likely persist given the unpredictability of war. The reality is that we are back to an era in which geopolitical-induced volatility will be a persistent factor. Time to increase equity allocation? After the fall, equities have become slightly more attractive, but in aggregate they are still not cheap. Investors can consider topping up their SIPs, but valuations do not yet offer enough comfort to warrant a material change in asset allocation. Invest in mid- and small-caps? Large caps are in a fair value zone, but that is not true of mid- and small-caps. Investors must proceed with caution in this space. That said, there are selective opportunities. Themes and sectors to favour, or avoid? The market correction is still not significant enough to have changed any sector outlook dramatically. It is just trying to price in the potential earnings damage to companies.. Gold still a safe haven? Our view on gold was very constructive for many years. But increasingly, it is behaving like a momentum asset, rather than a strategic asset or hedge. It is no longer a low-volatility asset, so we are cautious on gold. (Catch all the Personal Finance News, Breaking News, Budget 2025 Events and Latest News Updates on The Economic Times.) Subscribe to ET Prime and read the ET ePaper online. ...more