markets: ETMarkets Smart Talk: Diversify across equities, debt, and alternatives to preserve wealth, Anil Rego advises HNWIs

Q) The month of May started on a volatile note with benchmark indices witnessing wild swings on either side. How are you reading into markets?

A) The Indian markets have indeed started May on a volatile footing, reflecting a mix of global uncertainty, India–Pakistan military conflict, and valuation concerns. The wild swings in benchmark indices signal heightened nervousness among investors.

Foreign institutional investors have been somewhat erratic, reacting to global risk sentiment and yield differentials, especially with the India–US bond yield gap narrowing.

Overall, this phase appears to be more of a healthy correction or time-based consolidation rather than a structural reversal.

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Investors should use the volatility as an opportunity to accumulate high-quality stocks with earnings visibility, but with a strict eye on valuation and corporate governance.

Q) What is the sense you are making from the March quarter results? Are downgrades more than upgrades this time around?
A) The March 2025 quarter (Q4FY25) results paint a mixed picture, with earnings downgrades clearly outnumbering upgrades, especially in the broader market beyond large caps.While headline numbers suggest a decent season over half the companies in the Nifty 50 beat expectations this performance was largely margin-driven rather than led by robust revenue growth.

Many of these earnings beats were the result of lower input costs, particularly in sectors like metals and select industrials, rather than a genuine pick-up in demand.

Sectors such as financials and capital goods continued to show resilience, whereas autos, and chemicals reported muted results due to weak demand and margin compression.

Q) We have seen IndusInd bank results, and more skeletons could come out of the closet in near future. What should investors do who are invested in these type of companies with corporate governance issues?
A) IndusInd Bank’s Q4FY25 results exposed multiple layers of accounting discrepancies, misclassifications in its microfinance book, and possible governance lapses.

A ₹2,329 crore quarterly loss and slippages of ₹4,487 crore suggest that issues were not just isolated errors but systemic in nature.

When a company is undergoing a credibility crisis, averaging down can be dangerous.

Price declines are not just about sentiment but reflect real risk of further value erosion due to poor internal controls, penalties, or management shake-ups.

Q) What is the long-term outlook for Indian equities over the next few years?
A) The long-term outlook for Indian equities remains fundamentally strong and optimistic, supported by a confluence of structural growth drivers and improving corporate fundamentals.

Over the past decade, Indian markets have demonstrated a consistent upward trajectory, with the Nifty 50 delivering a CAGR of around 11–12%, closely tracking the growth in corporate earnings.

This price trend underscores a long-term correlation between equity market performance and earnings growth.

Looking ahead, India’s economic expansion is projected to remain among the fastest globally, backed by strong domestic demand, a stable political environment, increasing formalization, and rapid digitization.

These macro tailwinds are expected to translate into healthy corporate earnings, with consensus estimates projecting a compound annual growth rate of around 12% in Nifty EPS through FY28.

Key sectors such as financials, manufacturing, capital goods, and consumer discretionary are poised to benefit from both cyclical recovery and structural reforms.

Q) Which sectors are expected to deliver strong returns going forward? Any safe bets which investors can consider?
A) Looking ahead, certain sectors are well-positioned to deliver strong returns, particularly those tied to evolving consumer behavior, rising wealth, and infrastructure development. The consumer discretionary sector stands out as a key growth area.

With rising incomes, urbanization, and changing lifestyles, consumers are increasingly spending on non-essential goods and services ranging from retail and entertainment to luxury products and technology-driven experiences.

This sector benefits not only from growing domestic demand but also from digital adoption and e-commerce expansion, which continue to reshape how consumers shop and engage with brands.

Companies that innovate and adapt to these trends, especially those with strong brand recognition and digital presence, are likely to outperform.

The wealth management sector is another promising space, driven by the growing number of high-net-worth individuals, expanding middle class, and increasing financial literacy.

As more people seek professional advice to grow and preserve their wealth amid complex markets, demand for asset management, financial advisory, and private banking services is set to rise.

Wealth management firms that leverage technology to offer personalized, scalable solutions and integrate sustainable investing options can capture significant market share. Given the increasing importance of retirement planning and alternative investments, this sector combines growth potential with relative resilience even in uncertain markets.

Infrastructure-related sectors in economies where governments prioritize capital expenditure to fuel growth usually present good opportunities.

Continued investments in transport, energy, urban development, and digital infrastructure are expected to support long-term returns.

This sector benefits from stable cash flows driven by government projects, public-private partnerships, and rising demand for modern facilities and connectivity.

Moreover, infrastructure investments often act as a hedge against inflation, given their tangible asset base and pricing power in many cases.

Q) How can high-net-worth individuals effectively build wealth in the current market environment?
A) HNWIs looking to build wealth effectively in the current market environment need to adopt a diversified and dynamic approach that balances growth, risk management, and capital preservation.

Diversification remains a fundamental principle, spreading investments across a variety of asset classes such as equities, fixed income, alternatives, and commodities.

Equities should focus on high-quality companies with strong fundamentals, in sectors with tailwinds, which are poised for long-term growth.

Additionally, international diversification can help mitigate country-specific risks and tap into growth opportunities beyond the home market.

Fixed income investments are crucial for providing income and reducing overall portfolio volatility. Given the current interest rate environment, HNWIs should consider a blend of government bonds, high-grade corporate bonds, and alternative credit instruments, while being mindful of duration risk.

Alternative investments such as private equity, real estate, and infrastructure can provide uncorrelated returns and serve as effective lower volatile portfolio.

Commodities and precious metals like gold also play an important role in protecting portfolios from inflation and market uncertainties.

In the context of the current market environment, which features evolving interest rates, inflationary pressures, and geopolitical uncertainties, HNWIs should be especially attentive to inflation-hedging strategies and focus on sectors and regions with strong growth potential.

For instance, capitalizing on India’s robust economic expansion and global innovation trends can offer meaningful upside.

By maintaining disciplined diversification, managing liquidity thoughtfully, and adapting to macroeconomic shifts, HNWIs can effectively grow and preserve their wealth through both volatile and stable market phases.

Q) What is your take on Gold? Recently, it crossed Rs 1 lakh in the physical market. Right time to increase allocation or investors should wait for some cool off?
A) Gold recently crossing ₹1 lakh per 10 grams in the Indian physical market marks a key psychological and technical milestone.

The rally has been driven by a confluence of global macro factors, including geopolitical tensions, expectations of softening real yields, and central bank demand.

Ongoing concerns over US-China trade dynamics and a broader move towards de-dollarization have further supported its long-term investment case. In India, the rally has been amplified by a weakening rupee and import duties, pushing domestic prices even higher.

From a strategic standpoint, gold remains a strong portfolio diversifier and a hedge against macroeconomic instability.

With rising fiscal deficits globally, high public debt levels, and ongoing geopolitical friction, the long-term case for gold remains intact.

Investors should maintain a core allocation of around 5-10% to gold as part of a diversified portfolio. It continues to serve as an effective insurance asset during times of volatility and currency debasement.

However, tactically, gold appears overbought in the short term. The rapid surge in prices has outpaced fundamentals in some respects, with recent ETF outflows suggesting some investors are taking profits as equity markets rally.

Technical indicators also point to near-term exhaustion, meaning there could be a modest correction or consolidation phase ahead.

For investors looking to increase their allocation, it may be wise to wait for a potential pullback—ideally a 5–7% decline from current levels—before adding meaningfully.

Alternatively, a staggered or systematic approach (like SIPs in gold ETFs or sovereign gold bonds) could help average out purchase costs and reduce timing risks.

In conclusion, while the long-term case for gold remains strong, patience and disciplined entry strategies are advisable at this stage.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)