As the financial world grows increasingly interconnected, Emkay Wealth Management has urged investors to rethink their portfolio strategies, advocating a significant allocation to US equities. According to the wealth management arm of Emkay Global Financial Services, diversifying into the US market can offer exposure to high-growth sectors, particularly technology, which are underrepresented in Indian markets.
The Case for US Equity Allocation
Emkay’s recommendation centres on a 50:50 equity-to-debt allocation for balanced or moderate-risk investors. Within the equity portion, the firm advises dedicating 30% of the allocation—equivalent to 15% of the overall portfolio—towards US stocks.
“The US markets provide unmatched exposure to technology, which remains a critical growth driver,” said Dr. Joseph Thomas, Head of Research at Emkay Wealth Management. He highlighted sectors like artificial intelligence, biotechnology, and cybersecurity as key opportunities.
Indian investors seeking diversification and reduced risk can leverage the technological advantages of the US market, balancing the cyclical nature of domestic sectors with the steady performance of global tech giants.
Market Conditions and Debt Investment Opportunities
While equities are projected to outperform debt over the next three years, Emkay suggests that current conditions offer tactical opportunities in debt investments. With the Reserve Bank of India (RBI) expected to cut interest rates by 25 to 50 basis points in early 2025, debt instruments could become particularly attractive.
Dr. Thomas noted that easing monetary policy would boost liquidity, especially benefiting the housing sector, which has struggled under high interest rates. Meanwhile, global central banks, including the Federal Reserve, have already begun easing rates, which may redirect funds from developed economies to emerging markets like India.
Valuation Concerns in the Indian Market
Despite robust inflows into Indian equities, Emkay warned of potential overvaluation. The market capitalization-to-GDP (M-CAP to GDP) ratio of Indian listed companies reached a 15-year high of 140% earlier this year, raising concerns about sustainability.
“Markets might undergo a period of consolidation or time correction as they adjust to these elevated valuations,” Dr. Thomas explained. However, he remains optimistic about the long-term growth potential of Indian markets, expecting mid-cap stocks to deliver superior returns over time.
Parag Morey, Head of Sales at Emkay Wealth Management, echoed this sentiment, stating, “Markets are likely to pick up once earnings growth materialises. While short-term corrections may occur, the fundamentals supporting future growth are intact.”
Opportunities for Active Management and Stock Picking
In the current environment, Emkay sees an ideal landscape for active fund managers to outperform through selective stock picking. According to Ashish Ranawade, Head of Products, a broad-based rally may be unlikely, but specific sectors and companies present lucrative opportunities.
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“Active fund managers can generate higher alpha by identifying high-potential stocks in undervalued sectors,” said Ranawade. He emphasised the need for a disciplined, research-driven approach in navigating this market phase.
Indian IPO Market: A Selective Landscape
The IPO market in India, while vibrant, is expected to become more selective as investors focus on businesses with innovative and resilient models. “Companies with strong fundamentals will continue to attract investor attention, even as overall activity moderates,” Dr. Thomas noted.
The Global Context
Emkay’s advice aligns with broader trends in global asset allocation. With advanced economies easing interest rates, funds are likely to flow towards emerging markets, boosting India’s appeal. However, this global liquidity influx underscores the need for diversification into international markets like the US, offering stability and access to technological innovation.
For Indian investors, Emkay’s guidance on allocating 30% of equity exposure to US stocks presents a compelling case for global diversification. By tapping into the technological leadership of US markets and balancing domestic opportunities with international growth sectors, investors can achieve a well-rounded, resilient portfolio.
As Indian markets face valuation challenges and the IPO space becomes more discerning, a strategic allocation to the US offers both growth potential and risk mitigation, making it an essential consideration for forward-looking investors.
