How to invest now that the election results are out

The market experienced a decline on the day election results were announced, largely due to the outcome differing from widespread expectations. Despite this initial dip, the market rebounded the very next day due to strong underlying fundamentals of the country's economy.

With investors now pondering the best strategies for their portfolios in this post-election climate, Fisdom Research has provided insights to guide investment decisions.

Here’s a closer look at their recommendations across various asset classes and market segments:

Asset allocation insights

Equity: Neutral with a positive bias

Fisdom recommends maintaining a neutral stance on equities with a positive tilt.

They advise a balanced approach to portfolio construction, suggesting a 60:20:20 allocation among large-cap, mid-cap, and small-cap stocks.

This diversified strategy leverages bottom-up opportunities in a market that favors buying on dips.

Debt: Overweight

In the debt market, Fisdom suggests an overweight position, advocating for the barbell strategy.

This involves investing in both short and long-duration bonds.

Factors such as reduced fiscal deficit projections, potential inclusion in global bond indices, and decreased gross borrowing are expected to positively influence the bond market.

Gold: Neutral with a positive bias

Gold is recommended as a strategic allocation with a neutral stance but a positive bias.

Investors are advised to buy gold on dips, maintaining it as a hedge and a diversification tool within their portfolios.

Real Estate: Negative

For real estate, Fisdom's outlook is negative.

However, they recommend considering investments through Real Estate Investment Trusts (REITs) and realty stocks as potentially favorable alternatives.

International equities: Neutral

Maintaining a neutral position on international equities, Fisdom advises against overweighting this asset class.

The recommendation is to include it as a strategic allocation without significant emphasis.

Market capitalisation insights

Fisdom’s in-house research further examines the risk-return trade-off across different market capitalisations:

Large-Caps: Favorable for valuation expansion

Large-cap stocks are poised for valuation expansion despite a 9% decrease in the price-to-earnings (PE) growth rate.

The earnings per share (EPS) growth rate is projected to increase significantly to 22%, indicating strong underlying earnings performance.

This suggests potential for future valuation expansion.

Mid-caps and small-caps: Caution advised

Both mid-cap and small-cap segments show the greatest valuation expansion but the lowest earnings growth.

This disparity suggests that market optimism might be inflating valuations without corresponding earnings growth.

There is a risk of correction if the Q4FY24 earnings do not meet expectations, which could justify the current high valuations.

The bottomline

In conclusion, Fisdom’s insights emphasise the importance of active participation in the market through intelligent portfolio strategies rather than avoiding it.

A diversified approach across equities, debt, gold, and international equities, coupled with caution in the real estate sector, can help investors navigate the post-election landscape effectively.

Investors should stay informed and ready to adjust their strategies as market conditions evolve.

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