Investing in 2024: Old Money vs. New Money
S Naren, ED & CIO of ICICI Prudential AMC, emphasizes the importance of diversifying investments across asset classes to mitigate risk. While staying invested in old investments is relatively safe, allocating new savings requires caution. Naren warns against investing solely in pure equity, especially in small-cap stocks after their recent high returns. Instead, he recommends investing in all asset classes and incorporating hybrid strategies that include debt. Asset allocation has proven effective in reducing investment mistakes during bull markets. Naren believes that India’s macroeconomic management and structural market make it a good long-term investment.
The Importance of Asset Allocation
Naren explains that asset allocation is crucial for minimizing investment mistakes. By analyzing past bull markets, ICICI found that asset allocation could have significantly reduced losses in 2007 and 1994. Therefore, they recommend diversifying investments across different asset classes to manage risk effectively.
Managing Old vs. New Money
Naren suggests that investors should hold onto their old investments as India’s strong macroeconomic management and structural story indicate that market levels from 2020 or 2021 may not be easily attainable again. However, he advises caution when allocating new savings and recommends investing carefully across different asset classes rather than focusing solely on pure equity. Naren acknowledges the unexpected returns seen in small and midcap stocks but urges investors to exercise care with new investments.
Reconsidering Small and Midcap SIPs
Naren advises against further SIPs in small and midcap schemes, suggesting that incremental investments should be made in largecaps or flexicaps instead. While he mentions the possibility of systematic withdrawal plans for small and midcaps, he notes the difficulty of fully withdrawing investments due to India’s structural bull market and the discrediting of other emerging markets.
Valuations and Market Frenzy
Naren believes that mega caps and banks are currently fairly priced, while many smallcaps are overvalued. He highlights the surprising shift in valuations for some PSUs, which have moved from being undervalued to overvalued in just three years. Naren acknowledges that markets can remain overvalued for extended periods, citing the example of FMCG stocks. However, he cautions against specific stock recommendations and emphasizes the difficulty of identifying overvalued segments within PSUs.
Hot Take: The Importance of Diversification and Caution in Investing
S Naren emphasizes the need for diversification across asset classes and caution when investing new savings. While staying invested in old investments is relatively safe, allocating new savings requires careful consideration. Naren warns against investing solely in pure equity, especially in small-cap stocks after their recent high returns. Instead, he recommends investing in all asset classes, including debt through hybrid strategies. By practicing asset allocation and managing risk effectively, investors can navigate bull markets more successfully.
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