Intro: Indian equity markets are witnessing increased selling pressure amid rising global market volatility in October. As of October 22, the large-cap equity benchmark BSE Sensex has declined nearly 5% this month. Foreign institutional investors (FIIs) have also pressed the sell button, with net sales amounting to Rs 72,136 crore in October so far.
How can Indian investors protect their wealth during economic uncertainty or market volatility? In a conversation with Business Today, Ravi Singh, Senior Vice President (SVP)—Retail Research at Religare Broking, shared his thoughts on investment strategies for high net-worth individuals (HNIs) amid market volatility, FII flows between India and China, investment opportunities, sector valuations, and more. Edited excerpts:
Q) Equity markets are witnessing high volatility. Where do you think HNIs and ultra-high-net-worth individuals (UHNIs) should allocate their money?
Ravi Singh: HNIs/UHNIs should adopt a balanced approach in times of high volatility. Diversification spread across multiple asset classes such as equities, debt instruments, and alternative investments such as private equity and real estate can provide stability. Defensive sectors like IT, pharmaceuticals, and FMCG should be invested in during such times. International diversification and gold can be used as a hedge.
Q) What strategies do you recommend for Indian investors to protect their wealth during times of economic uncertainty or market volatility?
Ravi Singh: Indian investors should, therefore, follow asset diversification to ensure that the investment happens through a mixture of equities, bonds, and alternative assets. Significant portions can be maintained as liquid assets. Using stop-loss mechanisms and investing during market dips through systematic investment plans (SIP) will also minimize risks. Investment in defensive sectors and fixed-income securities reduces the vulnerability of a portfolio during turbulent periods.
Q) Your expectations for FIIs? Could China’s lower equity valuations attract foreign investments away from Indian equities?
Ravi Singh: Valuations in China are more attractive as compared to India and may attract some foreign investments. However, India promises steady growth, robust domestic consumption, and strong reform measures. FIIs shall remain invested in India at least in financials, IT, and consumer staples. Short-term waves, on account of global influences, can't be ruled out, especially a rebound in China.
Q) Which sectors are still attractive in this market? Which sectors do you think are currently overvalued?
Ravi Singh: Sectors such as banking, IT, pharma, and renewable energy, since their fundamentals are very good and growth drivers look bright for them. On the other hand, Sectors like real estate and FMCG, though having a huge rally, seem to be high on valuations since most of the sectors have rallied hard; there haven’t been very noticeable earnings growth numbers to validate these valuations.
Q) How do you view the role of alternative investments (such as private equity, real estate, and hedge funds) in a diversified portfolio in the Indian context?
Ravi Singh: Alternative investments in the form of private equity, real estate, and hedge funds are increasingly forming an integral part of a diversified Indian portfolio. They bring with them prospects of higher returns as well as portfolio stability, especially during corrections in the market. Such investments, though riskier in nature, have shown lower correlations with traditional assets and can boost long-term returns for HNIs and UHNIs.
Q) What are the common mistakes that Indian investors make in managing their wealth, and how can they avoid these pitfalls?
Ravi Singh: Common mistakes include a lack of diversification, emotional investing, and chasing short-term gains. Many investors fail to regularly re-evaluate their portfolios or follow a long-term financial plan. To avoid these pitfalls, investors should adopt disciplined strategies, ensure proper asset allocation, avoid herd mentality, and seek professional advice from financial advisors.