Mayur Patel, President & Fund Manager—Listed Equity at 360 ONE Asset, recently shared his comprehensive investment outlook for the next 12 to 18 months. In an interview, Patel discussed key sectors, asset allocation strategies, and his views on gold, information technology, and the broader Indian market.
Gold and Silver: A Long-Term Diversification Play
Despite recent rallies and subsequent volatility, Patel advocates for a long-term perspective on precious metals rather than short-term trading. He highlights gold's enduring appeal as a strategic reserve asset, supported by consistent central bank purchases, particularly from the People's Bank of China, and a global shift away from single-currency reserve concentration. Silver, with over half its demand stemming from industrial applications like solar and electronics, offers an additional dimension, benefiting from relatively inelastic supply. These factors, according to Patel, solidify a multi-year diversification case for precious metals.
Cautious Stance on Large-Cap IT Services
While the IT sector has undergone a significant correction, Patel maintains an underweight position on large-cap Indian IT services companies. He identifies the risk of AI-led disruption as a tangible threat, potentially leading to 3-4% deflation for players heavily exposed to this disruption. Patel emphasizes the urgent need for these companies to transform by acquiring niche capabilities and developing new AI-related skills. A visible transition in this regard would be an upside catalyst to his current cautious outlook.
Key Sectors for Opportunity and Caution
Patel expresses optimism for several sectors, citing reasonable valuations and growth potential:
- Financials: Private banks are attractive due to reasonable valuations and a rebound in system credit growth (from 9% to 16-17%). Non-banking financial companies (NBFCs) are poised to benefit from the commercial vehicle cycle, improving consumption, and overall economic resilience.
- Industrials: This sector offers robust 3-5 year growth prospects across areas like renewable energy equipment, power transmission and distribution, electronics, defense, and data centers. However, investors should exercise selectivity due to elevated valuations in certain pockets.
- Consumer Discretionary: Patel anticipates a cyclical uptrend in this sector over the coming years.
Conversely, in addition to IT, he advises caution on the energy and utilities sectors.
Navigating Asset Allocation: Equities, Fixed Income, and Gold
Patel underscores that effective portfolio management is not about choosing one asset class over another, but rather understanding their distinct risk-return profiles and roles. He remains bullish on Indian equities, noting that the Nifty is trading at approximately 3x price-to-book, which is below its 20-year median, suggesting reasonable valuations. Potential catalysts include FCNR(B)-led liquidity and a likely stabilization of crude oil prices around $70 as geopolitical tensions ease.
For fixed income, Patel prefers quality accrual in short to medium maturities, anticipating policy rates to remain stable before a modest hike next year. Gold, as previously mentioned, serves a long-term diversification purpose. Ultimately, asset allocation should align with an individual investor's risk appetite.
Nifty 50 Outlook and Mutual Fund Strategies
Despite the Nifty 50's largely flat returns over the preceding two years, Patel focuses on risk-reward. He views current market valuations as relatively reasonable. With a benign rate cycle, resilient underlying growth, improving liquidity, and rebounding credit growth, he expects double-digit compounding aligned with earnings growth over the next few years. The primary near-term concern remains crude oil prices, which are projected to normalize.
Regarding mutual funds, Patel provides a pecking order based on risk-reward:
- Small-cap funds: Valuations appear more reasonable after a correction, with growth trends holding steady.
- Mid-cap funds: Relatively expensive compared to their historical averages.
- Large-cap funds: Offer value, though growth concerns persist across several companies.
For investors who prefer professional management of market-cap allocation, flexi-cap funds are a suitable option, allowing fund managers to dynamically shift across segments as opportunities evolve. He stresses that fund selection should always follow an investor's suitability assessment or consultation with an advisor.
Avoiding Common Investor Mistakes and the Role of SIPs
Patel highlights a common investor pitfall: chasing past returns. He notes that investor participation often peaks when markets are highly valued and wanes after corrections, precisely when risk-reward profiles become more favorable. He advises against increasing allocations sharply during strong market phases and becoming overly cautious after downturns.
For Systematic Investment Plans (SIPs), Patel strongly advocates for continued contributions even during volatile periods. SIPs are designed to average purchase costs over market cycles, making discipline through volatility crucial for their effectiveness. Investors should prioritize disciplined asset allocation, periodic rebalancing, and resist the urge to chase recent outperformers based purely on momentum.
Macroeconomic Factors and Their Impact
Several macroeconomic factors are expected to positively influence Indian equity markets:
- Rupee Stability and FPI Flows: The rupee has stabilized, and Foreign Portfolio Investors (FPIs) have turned net buyers, supported by RBI measures like the discounted swap window for FCNR(B) deposits. This creates a virtuous cycle for equity flows.
- Interest Rates: The RBI is likely to hold rates in the near term, as inflation, though rising, is not yet broad-based, providing a supportive macro backdrop for earnings.
- Geopolitical Developments: An easing of the West Asia conflict is expected to bring crude oil prices down to around $70 per barrel, cushioning the Current Account Deficit (CAD) and enhancing macro fundamentals, further attracting FPI flows.
Patel also observes a significant rise in interest in multi-asset funds, driven both structurally by their diversified mandate (equity, debt, gold/silver) and cyclically by precious metals rallies. He views them as genuinely useful products that offer diversification benefits, especially during volatile periods.