Investment Opportunities In Indian Stock Market This Diwali: Expert Says Diversification Is The Key

Kunal Ambasta of Liquide opines that the overarching narrative seems promising, however investors should exercise caution.

Throughout Samvat 2079, the Indian stock market has demonstrated exceptional growth, defying global economic challenges. The Nifty has seen a substantial 9.5% increase, standing firm amidst global headwinds, which include slowdowns in major economies, the cooling of China's growth, geopolitical unrest, and widespread hikes in interest rates. The Nifty Smallcap 100 and Nifty Midcap 100 indices have also enjoyed considerable gains of 35% and 29.5%, respectively.

But what lies ahead for stock market investors? Will there be opportunities galore? Sharing his views, Kunal Ambasta, Co-founder and Chief Investment Officer at Liquide told Reema Sharma of Zee Media, "India's economic prospects are relatively positive, supported by robust corporate earnings and a consistent growth forecast between 6-7%. Furthermore, inflation rates are projected to be stable, hovering around 5% for the foreseeable future. These conditions have been further validated by JP Morgan's decision to include Indian government bonds in its Emerging Market Bond Index, potentially driving $20-30 billion in foreign investments. Leading investment firms like Morgan Stanley, CLSA, and Nomura have also upped their investments in India, indicating a potential preference for Indian equities over those of other emerging markets. Additionally, the Nifty 50’s forward P/E ratio sits below its five-year average, indicating a potentially lower risk of downside."

Performance History After Diwali Leading Up to Elections: Will there be an uptrend in the Stock Market?

Ambasta said, as India inches closer to the 2024 General Elections, historical patterns suggest a post-Diwali uptrend in the stock market, typically peaking around election time. While November 2003 to May 2004 marks a notable exception, other election years have seen substantial gains:

▪             Nov 1993 – May 1994: 48.1%

▪             Nov 1998 - May 1999: 37.4%

▪             Nov 2003 - May 2004: (4.6%)

▪             Nov 2008 - May 2009: 54.2%

▪             Nov 2013 - May 2014: 14.6%

▪             Nov 2018 - May 2019: 13.2%

These trends suggest that the stock market may react favourably as the next election approaches.

What About Sectoral Insights?

In terms of sectors, we have an optimistic outlook for Automotive, Steel, Construction, and BFSI sectors. Selected stocks within these industries are poised for promising returns. Gold also remains an attractive investment, serving as both a cultural staple and a hedge against inflation.

What are Prudent Investment Practices, any suggestion to investors regarding the Importance of Diversification?

While the overarching narrative seems promising, investors are advised to exercise caution. The two key market catalysts that have moved stock prices in the past two years, i.e. inflation and interest rates, will remain front and center. In such times of uncertainty, diversification remains the key to building a resilient portfolio.

For those new to the market, index funds or multi-asset funds could be an ideal choice, as they blend the strengths of diverse asset classes and are designed to yield steady returns over the long term. For a more strategic and streamlined investment approach, one might also consider products like Liquide's Baskets, particularly the newly launched “India Growth Basket”, which is designed to optimize investor returns in sync with market cycles, with a pronounced emphasis on Indian equities. This Basket employs a flexible, multi-faceted investment approach integrating fundamental analysis, technical indicators, valuation metrics, and macro analytics to ensure optimal diversification across sectors and avoid over-concentration.

Ambasta concluded by adding that it is an ideal option for those keen on harnessing India's vibrant growth narrative, and willing to embrace a calculated risk for the chance of exceptional gains.