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According to Motilal Oswal Private Wealth’s Alpha Strategist May 2025 report, the Nifty 50 large cap valuations have moved from attractive to fair levels. Due to this, the wealth management company has asked investors to moderate their return expectations in large caps while estimating Nifty’s earnings to grow at a 14% CAGR in the next two years.
The report has also asked investors to shift their focus away from recent events that brought uncertainty to the markets saying that such volatility is either behind us or has already been priced in by the market. Instead of such events, the investors should focus on earnings now.
When it comes to valuations in small and mid-cap segments, the valuations are still high as they continue to trade at premium. However, selective opportunities are beginning to emerge in these segments.
Power of long-term investment
The report shares that most of the times, a period of market uncertainty is followed by medium or high return periods. It cites research done by the private wealth company on active funds which shows that despite having a tough entry point in the first year, most active fund managers are able to give positive annualized returns over a 5-year and double digit returns over a 10-year period which also shows the power of long-term investing.
Better macroeconomic indicators
The report highlights India’s better macroeconomic indicators like a falling 10-year yield, a relatively stable rupee, contained inflation and continued fiscal discipline. Despite concerns over a slowdown, the private wealth company cites increase in manufacturing activity and good exports data as indicators of a potential pickup in economic activity.
Recommended portfolio strategy
Equity: For investors with lower equity allocation, lumpsum investment in hybrid, large cap and flexi cap funds is recommended. A staggered approach is preferred in mid and small cap over the next 2-3 months.
Fixed Income: 45-55% of the portfolio can be in performing credit and private credit strategies, InvITs and select NCDs (Non-Convertible Debentures). 20% – 25% may be invested in private credit including real estate/infrastructure strategies and select NCDs. 25% - 35% of the portfolio may be invested in arbitrage funds (minimum 3 months holding period), floating rate funds (9 – 12 months holding period), absolute return long/short strategies (minimum 12 -15 months holding period).
For tax efficient fixed income alternative solutions, 20% - 25% of the portfolio may be allocated in conservative equity savings funds (minimum 3 years holding period).
