As volatility galore, is it time to review your asset allocation?
Indian market is currently moving in a corrective phase and a lot of investors are thinking to depart from equities. But first, read this before you do so.
With Foreign Institutional Investors (FII) selling, and Domestic Institutional Investors (DII) buying, are not able to match selling done by FIIs, thereby creating a net-selling situation in the market. So, there is no doubt that the market (referring to Nifty 50) is heading southwards since October 19, 2021. Moreover, on November 15, 2021, it failed to breach the high made on October 19, 2021, and instead registered a lower high. It successfully breached the low made on October 29, 2021, and made a lower low at 17,216. Speaking about its support and resistance zones, they are placed between 17,216 - 17,453 levels and 18,342 - 18,605 levels, respectively. Hence, to confirm the next move of the market, Nifty should breach the above-mentioned levels on either side. Having said that, the 100-day exponential moving average (EMA) and 50-day EMA does act as good support. Interestingly, the market has breached its 50-day EMA and is presently trading near its 100-day EMA.
It would be difficult to say whether the market is ready for a big correction, unless the market breaks and sustains below its 100-day EMA. Moreover, if it continues to make lower highs and lower lows, then the market is likely to further head southwards. But right now, the Nifty is into a correction mode. Therefore, it is psychologically natural that an investor would worry and think about what asset allocation should they be having in the current market scenario?
The following paragraphs would help you understand the same.
Looking at asset allocation at a broader level is fine, but you should also look at it even deeper at the sub-asset class level. Hence, just understanding the allocation between equity and debt is not sufficient, it would be beneficial if you also decide on allocation between equity sub-asset classes such as largecap, midcap and smallcap and between debt sub-asset classes such as low duration, short duration and long duration.
To understand the right asset allocation, we would use Equity Sentiment Index®, which is DSIJ’s proprietary tool. Therefore, in the current market scenario, you should have a portfolio more skewed towards equity. The asset allocation of 60 per cent in equity and 40 per cent in debt is recommended.
So, if you have a higher allocation to equity than the above-mentioned allocation, then book profits and play safe with fixed income. However, if your fixed income allocation is higher, then you should consider buying equity to match the above-mentioned asset allocation. Needless to say, that while buying equity you should do so in a staggered manner. Remember, if you are handling your portfolio actively, then do review your asset allocation at least quarterly.