Stocks vs fixed income: How to invest when inflation seems to be peaking
Debt is an important part of an individual’s portfolio as it brings stability. Some analysts believe that that the return differences between debt and equity is likely to be far narrower next year with inflation expected to moderate further next year. Though Indian stock markets have outperformed global equities this year, some analysts say that high valuations could crimp gains next year.
“Equity investors can wait for the global markets to stabilise before making fresh commitments in this overvalued market. Moving some money to fixed income makes sense since fixed income returns are turning attractive,” said Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
“High valuations and rising interest rates are likely to restrain the ongoing rally. Fixed income assets are becoming attractive,” he added.
In a note on outlook for 2023, Kotak Mutual Fund said: “Inflation expectations globally seems to have peaked and falling commodity prices, withdrawal of liquidity and increasing rates by global central banks indicate that the trajectory of inflation is now down. The five to seven-year segment provides a better opportunity for investment in fixed-income funds. If we talk about the funds, investors should ensure that their time horizon and the funds’ investment horizon is aligned.”
For investors looking to looking to park money for a shorter period of time , the fund house said, money market funds, savings funds and low-duration funds will be more appropriate. “If you are looking at the medium-term to long-term view then there funds like Corporate bond funds, floating rate funds, short-term bond funds, medium-term funds and Banking and PSU debt funds, Bond Funds and dynamic bond funds,” it added.
Banks have also been increasing their fixed deposit rates to attract funds as credit growth picks up. Recently, HDFC Bank hiked interest rates on FDs to as much as 7%. Some small finance bank are offering over 8% to senior citizens.
Outlook for 2023
“It is likely to be a volatile year with a roller coaster ride and hence having allocation between debt, equity, real estate and commodity is extremely important. This is not the time to be leveraged in equity. This is the time to maintain a neutral allocation to equity and use any correction as an opportunity to enter. We suggest marginal overweight to large cap, and marginal underweight small and mid-caps. An equal allocation to equities as an asset class,” Kotak Mutual Fund said in the note.
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Ganesh
http://ganesh@finplay.inFinance enthusiast, Mutual fund expert.