ETMarkets Smart Talk: If you earn Rs 1L/month, consider 50/30/20 rule for financial planning, says Raghvendra Nath

“Investing in equity or equity mutual funds for the long term is one of the best ways to beat the inflation monster. Every earning individual should follow the 50:30:20 rule in their financial planning,” says
Raghvendra Nath,
Managing Director,
Wealth Management.
In an interview with ETMarkets, Nath, said: “The 50/30/20 rule of thumb is a good starting point for allocating your budget: 50% to “needs,” 30% to “wants,” and 20% to your financial goals” Edited excerpts:

September turned out to be a volatile month for equities where 60,000 on Sensex acted as resistance while for Nifty50 18,000 proved to be a big hurdle. How do you see markets moving in the festival month – October?

The soaring dollar caused by aggressive monetary tightening, slowing economic growth, and rising demand from wary investors is causing turmoil in the global equity market.

This is causing havoc in the domestic market, owing to the weakening INR, rising bond yields, and pessimistic trends among Asian peers.

While domestic investors have a strong appetite for upbeat narratives, we cannot ignore the risks of high inflation, which has forced central banks around the world to raise interest rates.

India’s economy is growing at a relatively fast rate, but sluggish export markets will hurt, even as the majority of global capital flows respond to tighter US monetary policy, and a rupee that has lost both internal and external value could undermine macro stability.

We will be looking for USD INR slippage below 80.7 in the coming days to invalidate upside expectations in the market.

For the coming days, for Nifty, the 200-day SMA and 16,850 would be important support levels for traders. On the other hand, the bulls may face immediate resistance at 17,150 and 17,200.

What are your expectations from India Inc. for the September quarter?

High raw material prices harmed Indian companies’ profitability in the fiscal first quarter, though passing on some of the cost burden aided revenue growth.

A rise in consumption, particularly in rural demand, will boost earnings. There is a pressure on manufacturing firms’ operating performance which was in a way expected, and many companies did report a sequential decline in operating profits due to rising input costs.

The growth is driven by cyclical sectors like banks, capital goods and consumption. Metals, automobiles, information technology, and cement drove the contraction.

As inflationary pressures ease, there is hope for better performance in H2FY23, assuming no other negative triggers occur by then. However, volatile crude oil prices, monetary tightening and any spike in geopolitical tensions around Russia-Ukraine may further hurt the supply chain.

How are you viewing gold in the festival season?

Last week, gold dealers in India were offering a discount of up to $2.5 per ounce over official domestic prices, down from the previous week’s premium of $3.

Today, gold struggled in Indian markets as international rates remained near two-and-a-half-year lows. Gold futures on the

fell to near six-month lows of 49,295 per 10 gram before recovering some ground.

Thus, yellow metal prices have recently fallen in both domestic and global markets. Global gold rates have fallen 20% since reaching $2,000 in March, as the US Fed’s rapid monetary tightening has made non-yielding gold less appealing.

In response to the Fed’s aggressive monetary tightening, the US 10-year yield has approached 2010 high. Gold has lost its luster as a result of global market corrections and a higher dollar index.

A sustained rise, in my opinion, is unlikely until the US dollar reverses from its peak. However, from a festival standpoint, we can expect an increase in buying of Gold for consumption purposes at this corrected level.

As the interest rate is likely to rise – what should be the right portfolio mix for investors who are looking to remain invested for say 5 years?

Rising interest rates do not affect all industries equally. It is possible to select stocks that are less vulnerable to rate hikes.

Capital-intensive industries, such as capital goods and infrastructure, are likely to be more affected than segments such as IT and services.

Rising interest rates may benefit the banking industry. Banks are expected to expand in the coming years as a result of the economic recovery, increased capex, and retail credit push.

The banking sector has underperformed the overall market due to issues such as slowing bank credit growth and asset quality pressure.

Bank credit growth has been muted in recent years, owing primarily to weak demand and balance-sheet constraints.

Over a one-year period, pharmaceutical funds delivered a negative return of 11% to investors. After underperforming the previous year, the pharmaceutical sector appears to be on track to perform well over the next five years.

Furthermore, capital goods is another sector that can be investigated. Another sector to keep an eye on is banking.

Domestic consumption in India has seen a healthy recovery following the covid pandemic and is seen as a key driver of future growth. Indeed, retail sales data show a significant increase in consumption this year so far.

What is your take on the small & midcap space which has managed to buck the trend? What should be the ideal portfolio mix for small & midcap space?

The first half of 2022 was a very volatile market due to both domestic and international issues. We believe that the market has priced in the short-term negatives.

The midcap index is likely to rise because inflation can be controlled, and Russia Ukraine’s war has reached its conclusion, and there is now a good monsoon.

We anticipate that midcap and small cap stocks will perform better due to their volatile nature and ability to recover quickly.

Midcaps and small caps tend to see a steeper rally than blue chips when the market move northwards. They do, however, fall equally hard when the market falls.

We expect one should add large-cap stocks along with mid and smallcap stocks in the coming months in FMCG, auto, and private sector banks to comfortably outperform the market.

During periods of economic recovery, mid-cap and small-cap stocks tend to perform well.

How is the wealth management space shaping up in India? How are HNIs investing their money? What about international funds or stocks?

It is a well-known fact that more than 95% of investors invest in their home countries and miss out on wealth generated outside of their countries.

Thus, one would be ignoring big investment opportunities out there. Every country has different economic cycles and having a small portion of your portfolio outside of India can help mitigate country risk and supplement portfolio yield when the domestic market is down.

Consider having some exposure to international funds once your domestic MF portfolio is well-diversified. Ideally an average investor should take 5% to 10% exposure to international funds.

Some international markets have a low correlation with our Indian markets. This low correlation, particularly with developed markets, reduces portfolio volatility and ensures adequate diversification. Not to mention that these serve as a hedge against Rupee depreciation.

If someone is investing only via SIPs, then ideally how many SIPs he should open on a monthly basis? What is the ideal diversification if someone is earnings Rs 1 lakh/month?

To offset the inflationary decrease in purchasing power and thus savings, one must choose investment options that have the potential to provide a much higher return.

Investing in equity or equity mutual funds for the long term is one of the best ways to beat the inflation monster. Every earning individual should follow the 50:30:20 rule in their financial planning.

The 50/30/20 rule of thumb is a good starting point for allocating your budget: 50% to “needs,” 30% to “wants,” and 20% to your financial goals.

Ideally one should consider investing 20% of income and gradually increasing the same. Before you begin a SIP into any mutual fund scheme, make sure that the mutual fund scheme’s objectives and risk levels match your risk tolerance and profile.

However, one needs to keep in mind that SIP returns are not constant. They are completely determined by market conditions.

Large-cap stocks are expected to return 12-18% on average, while mid-cap stocks are expected to return 14-17% on average.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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