How to rebalance asset allocation as the stock market improves

If the Ukraine conflict continues for a long time, albeit at a low level, what could be its impact on the Indian equity markets? What risk-reward should an investor be aware of when investing at current levels?

From a stock market perspective, while this event has the potential to create panic in the market, and the extent of the loss depends on how the event unfolds, we take comfort from the fact that equity markets have such Land digestion has a long history. Political events within months and focus on the fundamentals that followed. Furthermore, we are expecting 2022 to be a story of two halves:

In the first half, we expect the markets to digest the pace of policy normalization, geopolitical events, inflation stickiness as well as the Omicron issue and, therefore, expect it to be volatile.

In the second half, we expect markets to react in the direction of earnings, as the economic recovery unfolds. Overall, we are constructive on equities in 2022 but are poised for higher volatility in 1H2022. Therefore, our advice to investors is to invest in Indian equities in installments over 1H2022 instead of one time. We continue to recommend the same.

Which equity funds do you recommend for investors with a low risk appetite at present?

Among equity funds, for low-risk investors, we would recommend Flexi-Cap Funds or Large & Mid-Cap Funds in the current circumstances. However, the medium-term asset allocation of the investor should also be taken into account in the process.

Should an investor rebalance his asset allocation to take advantage of market downturns?

As the equity market is correct, we would recommend increasing the level of equity allocation depending on the risk-appetite of the investor and his/her current asset allocation.

Commodity prices are rising as the Ukraine crisis drags on for a second week. What risk-reward should an investor keep in mind while investing in commodity/commodity stocks at current levels?

While most of the commodity prices in the recent past are driven by geo-political events etc., we expect them to be transient in nature and hence, the commodity prices are expected to stabilize over the next 3-6 months, as we lets see. Events closely.

Do you expect the US Fed to ease the pace of monetary tightening due to the Ukraine crisis?

In light of recent events, it is certainly one of the central bankers around the world to adjust the pace of monetary tightening, to prevent demand destruction and losses in economic momentum. We believe central bankers are well aware of this, can use this powerful tool when needed.

How long do you see volatility to continue?

Apart from a possible solution between Russia/Ukraine, we feel that an alternate source of gas/oil could in our view act as a short-term fix for rising commodity prices, providing relief to equity markets .