What should be your ideal strategy to invest in this Diwali season?

1. What are the top 5 sectors to invest in this Diwali season?

Atanuu Agarrwal, Co-founder of Upside AI said “We follow a systemized approach where our proprietary algorithm leverages machine learning tools and constructs a portfolio based on prevailing market conditions. Our investment methodology focuses on relying on objective parameters and eliminating human bias from decision-making. Currently, our portfolios are overweight on cement, pharma, BFSI, industrials, and chemicals.”

2. From stocks or gold where investors should invest and why?

Atanuu Agarrwal said “I don’t think there is a one-size-fits-all approach that works in asset allocation. How much one should invest in each asset class depends on one’s circumstances and short-, medium-, and long-term goals. If you have many years or decades of earning capacity left, equity allocation should be high. Gold from a USD perspective has been an underwhelming asset over the long term, however, in India, it can serve as a partial currency (since it’s pegged in USD) and equity (due to historically negative correlation) hedge. So, some allocation (ideally through sovereign gold bonds) may make sense.”

3. Keeping in mind the market behaviour for the past months, which is more favorable to invest in? Stocks, gold funds, etc?

“Just for a moment think about the number of factors to consider today – high inflation, rising interest rates, high CAD and currency depreciation, geopolitical tensions, a global economic slowdown, festive demand, an uneven monsoon, and a K-shaped recovery. This list is definitely not exhaustive. Also, these variables don’t only affect the market, they also affect each other. It is impossible for any human ‘expert’ to assimilate this much information and form an informed view that is not already priced into the market. Which is the key reason for us to instead rely on objective data and algorithms. We have built a product that parses macroeconomic fundamentals and dynamically allocates between equity, debt, and gold. For most investors, I think it is best to determine an appropriate asset allocation and stick to it; one can review it periodically,” said Atanuu Agarrwal.

4. What should be the ideal strategy to invest in?

“As I have said above, the best way to create wealth is sound asset allocation. Sound asset allocation means to be invested across uncorrelated asset classes. For example – Stocks and FDs are examples of assets that have near zero correlation, i.e. when stocks move up or down, FD rates don’t move up or down in tandem. Hence, it is important that both these asset classes (“equity” – stocks and “debt” – FDs) be part of your portfolio. Similarly, there are other relatively uncorrelated asset classes like gold, real estate, and even crypto (subject to regularity clarity) that are also accessible to Indian retail investors,” he claimed.

5. What mistakes do people usually make while investing?

“Daniel Kahneman’s quote captures one of the key mistakes investors tend to make – “We are prone to overestimate how much we understand about the world and to underestimate the role of chance in events. We can be blind to the obvious, and we are also blind to our blindness.” Just remember that for any given year, the entire year’s returns are made in 10 days on average (out of ~250 trading days). It is impossible to figure out what those 10 days are and therefore critical to stay invested through cycles. Overallocation to specific sectors or stocks based on perceived trends and ‘expert’ opinions, investing based on FOMO or recency bias, and inappropriate asset allocations are also some mistakes I think investors make frequently,” said Atanuu Agarrwal.

6. List a few financial instruments that we can use to invest during this Diwali?

“As far as equity is concerned, one can think about it in three buckets – large-caps, mid-/small-caps, and international. For large-caps, I consider a Nifty 50 ETF/index fund and a Nifty Next 50 ETF/index fund. It is tough for actively managed mutual funds to deliver alpha here. On the other hand, I would pick a handful of actively managed mutual funds in the small- and mid-cap space. It is important to conduct research (methodology, performance, fees, etc.) on these funds. There are also model portfolios offered by services like smallcase, Wealthdesk, and other RIAs and research services. On the international side, there are ETFs and mutual funds that track global indices like the NASDAQ 100 and S&P 500. For debt, I would recommend maxing out tax-free contributions to PPF and EPF – they currently offer attractive, practically risk-free interest rates with unbeatable tax benefits. RBI floating rate bonds (that are easily accessible through most net banking portals) are also safe instruments that offer interest rates generally in line with the market. However, the principal is locked up for 7y. The best way to invest in gold for the long term is through Sovereign Gold Bonds (SGBs). In addition to capital gains exemption (if held to maturity of ~8y) on gold price appreciation, the bonds also pay 2.5% p.a. as interest on the initial investment. Rather than investing in physical assets, Real Estate Investment Trusts (REITs) are an attractive avenue to invest in real estate,” Atanuu Agarrwal said.

7. With the ongoing market volatility, what are your thoughts on equity flow?

“As with other central banks around the world, RBI’s hand is forced in raising interest rates due to persistent inflation and the relative strength of the dollar. The RBI will also have to balance tightening liquidity conditions with banking liquidity slipping into a deficit. With the festive season approaching, severe liquidity constraints could prove detrimental to overall growth. In addition, INR at record lows and a widening current account deficit are concerning. Also, depleting forex reserves and tight liquidity conditions mean that RBI’s interventions would be limited. Also, an uneven monsoon and sticky unemployment in certain areas mean that consumption demand from India’s rural and semi-urban areas is an area of concern as well. Given the uncertain macro environment and potential FII outflows, retail equity flows continue to be very robust. However, as consumption picks up and the savings rate drops, they may not always serve as a bulwark,” he further claimed.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.