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How to Build a Portfolio for 2024 🍕

2023 started on a pretty soft note. The RBI was raising rates to control inflation, and making investing in debt tricky. Meanwhile, the equity markets were having a tough time dealing with a worldwide recession and a potentially slowing domestic economy.

But things changed quickly, the inflation print in mid-March sent a wave of confidence running through the global economy, and had the Nifty rallying more than 25% to reach its all-time high. The mid and small-caps performance was even more blockbuster with returns nearing 50% since April 1, 2023.

If you let the foul mood of the end of 2022 affect your decision-making for 2023, you would have landed up in a pretty sorry state, overflowing with grief on not making the most of the rally. And if you took a bet on equities turning around, you’re probably partying hard right now.

But with 2023 nearing its end, what’s 2024 got in store for you?

What’s Happening Right Now?

While we’ve been speaking a lot about what’s happening every week, here’s the story in a nutshell:

  1. Inflation is getting controlled sans transitory spikes caused by weather, transport, wars, and other supply-side disruptions

  2. The government has been taking action on controlling inflation and the onus is hence not entirely on monetary policy

  3. There’s enough ammo with the RBI, other than interest rates to crunch liquidity in the system, making a case for another hike weaker

  4. There is more optimism for economic revival globally, resulting in the bulls taking over, and equities doing well

What’s in Store for 2024?

Much of how we’d be spread across different asset classes would depend on what we foresee for the next year. Basis the current situation, we are baking the following assumptions in:

  1. 2024 is a year of political drama, with voters in 50 countries going to the polls, including in India. There could be some drama and anxiety pre-May-2024, but there’s a good chance for political stability to continue

  2. Fiscal policy has been oriented towards the long term, and we see continued aggression on policy initiatives and on execution. However, the aggression on spending might come down a tad bit, with focus shifting sightly towards fiscal prudence

  3. The inflation situation could see status quo - more control, but with periodic spikes and worries. El Nino is expected to continue till April 2024, which should cause some more erratic weather patterns (get ready for one more hot summer!), impact crop yield and hence worry

  4. With this, the rate hike pause could continue, but the possibility of rate cuts could be more realistic towards the end of the 2024, if at all

  5. Global growth can be better compared to what was last year. However, relative outperformance for India is likely to remain constant

These assumptions would have a varied impact on asset classes:

Asset Allocation for 2024

Although a lot of asset allocation depends on personal conditions, there’s some amount of manoeuvrability a portfolio can offer to accommodate for views on asset classes. Assuming this pocket of freedom, the above probability of what’s going to happen in 2024 can translate into asset allocation decisions.

A special mention to Aryan Mulchandani, who has been instrumental in helping us write this blog, especially concerning the debt allocation sphere. He also runs a well-written newsletter called Manifest Wealth!

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