US Equity Exposure: Factors to Consider for Portfolio Readjustment

US Equities' Strong Run Raises Rebalancing Questions

US equities have delivered up to 50 percent returns over the past year, outperforming Indian markets and pushing portfolio allocations higher than intended. What was once a 10-15 percent exposure in many portfolios is now closer to 20-25 percent, largely due to market performance rather than fresh investment.

This shift has raised a key question: is it time to rebalance? The increase is not because investors added more money but because US markets delivered strong returns over the past year, zooming ahead of Indian equities. This has led to a natural drift in portfolio allocation, as stronger-performing assets start to take up a larger share of the portfolio.

Valuations Indicate Potential for Lower Returns

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While past returns have been strong, experts say valuations indicate that the easy gains may already be behind. The S&P 500 is trading at around 20 times forward earnings, slightly above its long-term average. The Nasdaq, too, remains elevated, with valuations reflecting strong growth expectations.

This does not necessarily point to an immediate correction. However, it does suggest that a large part of future earnings growth may already be priced in, leaving less room for upside surprises, especially if interest rates remain elevated.

Access to International Funds Remains Uneven

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Investor decisions have also been affected by intermittent access to international funds. Due to regulatory limits on overseas investments, international funds have opened and closed for subscriptions from time to time. This leads investors to allocate capital quickly, sometimes without fully considering portfolio balance.

Maintaining Balance Key to US Equities Allocation

The case for US equities remains intact, but experts say the focus is shifting from increasing exposure to maintaining balance. At this stage, the idea is not to reduce US exposure completely, but to bring it back to a level that fits the overall portfolio.

Broadly, allocation depends on risk profile: periodic profit-booking matters more than it has in recent years, and going beyond 20 percent at current valuations is hard to justify on a risk-adjusted basis.

Aligning Exposure with Goals Becomes Critical

In this environment, experts say the purpose behind US allocation becomes more important. If the investment is meant for future dollar-denominated goals, such as overseas education or travel, maintaining exposure may still make sense. However, if the objective is purely return-driven, expectations may need to be moderated.

US Equities Continue to Play an Important Role

US equities continue to play an important role in Indian portfolios, but the environment has changed, say experts. Earlier, returns were supported by strong momentum, abundant liquidity, and favourable currency trends. Today, conditions are more balanced and potentially more volatile. For many, this may not call for drastic action but it does warrant a review.