We advise clients to stay invested based on strategic asset allocation rather than making decisions based on election outcomes: Rohit Sarin of Client Associates

It is important to maintain a strategic asset allocation rather than making investment decisions based on election outcomes, said Rohit Sarin of Client Associates, a firm that advises more than 1,000 multi-family offices and manages more than $6 billion AUM. He advises clients to allocate around 50% to large-cap stocks, with the remainder in multi-caps.

Edited excerpts:

How does the election result affect stock markets or personal finance decisions?

Sentiments drive stock markets in the short term, while long-term trends are aligned with fundamentals.

The impact of election results on stock markets can be significant, with short-term sentiments often driven by exit polls hinting at political stability and a strong mandate, boosting market confidence. Investors may react positively to the prospect of sustained economic growth, a robust capex cycle, and ongoing reforms over the next five years. In the long term, an expectation of continuity in economic policies can lead to a pick-up in private investment, as a stable political environment is conducive to long-term economic planning and investment.

We advise clients to stay invested based on their strategic asset allocation rather than making decisions based on election outcomes.

Where should one invest in the current market—large-, mid- or small-caps?

That’s the next level of detail we pick up from our investment processes to advise clients on the asset class level. While our stance is to maintain long-term equity allocation, within equity, we also look at various parameters. One of them is a category. Currently, large-caps are looking more attractive in valuation than mid- and small-caps. Our advice is that we are significantly underweight in mid and small-cap sectors. We advise clients to allocate around 50% to large-caps and the rest towards multi-caps.  

What are you advising your clients this year, since it’s an election year?

We follow a process-driven approach in advising clients, focusing on long-term asset allocation and market trends. Currently, we have a neutral stance on equities, suggesting clients maintain their allocations but be cautious. We prefer large-cap stocks within equities due to their relatively attractive valuations compared to mid and small-caps. We advise clients to be significantly underweight in mid- and small-caps.

Are there any themes you’re betting on or expecting to perform?

We are currently favouring the growth investing style over value. The growth style has underperformed recently, but we believe it is poised for a comeback in the next market cycle. Therefore, we are advising clients to consider growth-oriented investments.

What is your view on the US markets?

In our assessment of the macro environment, we look at both global and domestic economic practices. There was an expectation that the US economy would have a soft landing in 2023. Initially, there were concerns about a potential recession in the US and debates about whether it would be a hard or soft recession. By mid-2023, the consensus was leaning toward a soft landing. However, towards the end of 2023, expectations about the Fed reducing interest rates did not materialise. The US economy surprised everyone by maintaining high interest rates longer than expected. This has led to a slowdown in economic activity, impacting demand. We anticipate that the Fed might start reducing interest rates towards the end of this year.

The US markets are currently facing a complex future with signs of a slowdown. This situation is similar in Europe, where major economies are struggling. China’s economy, although recovering, is not expected to reach its previous high growth rates.

Will RBI reduce repo rates in the next monetary policy? 

The RBI has managed inflation exceptionally well, despite global pressures. The Indian economy is currently growing with strong momentum, with GDP showing good performance. Therefore, need for lowering interest rates now to spur the economy isn’t there. Also, reducing interest rates before the US could widen the interest rate gap, leading to outflows from Indian markets to the US, impacting the currency and inflation. Therefore, the RBI is likely to maintain the current rates.

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