Edelweiss MF’s Trideep Bhattacharya explains how to rebalance asset allocation as the stock market corrects


As equity markets correct, Trideep Bhattacharya of Edelweiss AMC, CIO-Equities, in an interaction with Livemint, indicated that investors may consider increasing equity allocation levels, depending on the appetite for risk and existing asset allocation. Here are the edited experts:

If the conflict in Ukraine continues, even on a smaller scale, what could be the impact on Indian stock markets? What risk/reward should an investor be aware of if investing at current levels?

From a stock market perspective, while this event has the potential to cause market panic and the extent of damage depends on how the event unfolds, we are reassured that stock markets have a long history of digesting such geolocations. political events in a few months and focus on the fundamentals thereafter. Additionally, we expected 2022 to be a story of two halves:

In the first half of the year, we expect markets to digest the pace of policy normalization, geopolitical events, inflation stickiness as well as the omicron issue and as a result, we expect be volatile.

In the second half, we expect markets to react to the direction of earnings as the economic recovery unfolds. Overall, we are positive on equities in 2022, but prepared for higher volatility in 1H2022. Therefore, our advice to investors has been to invest in Indian stocks in tranches in 1H2022 rather than all at once. We continue to recommend the same.

What type of equity fund would you suggest for investors with a low appetite for risk in the current environment?

For investors with a low appetite for risk, among equity funds, we recommend a flexi-cap fund or a Large & Midcap fund in the current circumstances. However, the investor’s medium-term asset allocation must also be considered in this process.

Should an investor rebalance their asset allocation to take advantage of the market correction?

As equity markets correct, we advise increasing equity allocation levels, depending on the investor’s risk appetite and existing asset allocation.

Commodity prices rise as Ukraine crisis drags into second week. What risk/reward trade-off should an investor bear in mind if taking exposure to commodities/commodity stocks at current levels?

While most commodity prices have spiked lately, due to geopolitical events etc., we expect them to be transitory in nature and therefore we expect prices to commodities stabilize over the next 3-6 months as we watch developments closely.

Do you expect the US Fed to slow the pace of monetary tightening due to the Ukraine crisis?

In light of recent events, adjusting the pace of monetary tightening is certainly one of the levers available to central bankers around the world to avoid the destruction of demand and the loss of economic dynamism. We believe that central bankers are well aware of this and could use this powerful tool if needed.

How long do you think the volatility will continue?

Besides a potential resolution between Russia and Ukraine, we believe another source of gas/oil could act as a short-term solution to soaring commodity prices, which we believe would provide relief to equity markets .

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