Investors Advised to Rebalance Portfolios for Optimal Returns: Expert Insights

Market Outlook Remains Optimistic Amid Uncertainty

Gaurav Misra, the head of equity at Mirae Asset Investment Managers (India), remains optimistic about the equity outlook over the medium and long term, despite the current uncertainty in the market.

According to Misra, investors who are under-allocated should take this opportunity to build up to an optimal equity allocation, in addition to continuing with Systematic Investment Plans (SIPs). He believes that timing the markets to perfection is not as important as having an optimized asset allocation in this bout of equity correction. Misra suggests that investors review their asset allocations periodically and keep them at optimal levels, given the uncertainties and geopolitical faultlines in the market.

Within equities, Misra recommends allocating a proper weight towards large-cap stocks, as they tend to be less vulnerable to economic shocks and valuations have become more reasonable in periods of uncertainty.

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Reserve Bank of India's Monetary Policy Decision

The Reserve Bank of India's (RBI) recent monetary policy decision suggests a pragmatic and adaptable approach, taking into account the vulnerabilities to domestic macro stability. The RBI has assumed a growth and inflation forecast, mindful of the overnight developments in the Middle East. The central bank now expects crude oil to average $85 a barrel for the full year, up from $75 earlier, and the rupee to be at 94 against the US dollar.

The RBI has also suggested a higher sensitivity of inflation, at 50 bps for every 10 percent increase in crude oil. This implies that if the Middle East situation re-escalates or worsens, there will be an impact on the growth and inflation outlook.

Oil Prices and the Indian Rupee

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Misra expects oil prices to retrace to averaging around $85 a barrel for the full year, which is a reasonable correction from the $110 levels. However, reaching oil prices of $75-$80 levels or closer to the pre-war level will take more time and depend on how soon the hostilities desist in the region.

Regarding the Indian rupee, Misra does not see any structural pressure on the INR. However, in the short term, the rupee's outlook will be dynamic, influenced by the Middle East developments, the dollar index, and FII selling. If a ceasefire converts into a durable peace agreement, the INR should stabilize.

Earnings Downgrade for FY27

Misra expects a 2 ppt cut to FY27 earnings, assuming things normalize in a few weeks or a month. The provisional numbers for the first half of FY27 are in line with expectations, indicating that the underlying economy was strengthening. Credit growth, discretionary, and staple consumption growth suggest that the economy is on the right track. However, a cut to earnings is expected in the first half of FY27, with a full-year earnings cut of 2 ppt.