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Rupeeting Core Rebalance - June 2022


After a tumultuous quarter across the globe, we are back with our timely rebalance to reflect where and why your money has moved!


Our risk-appetite based portfolios have maintained their proportion of risky-safe ratio due to our firm resolve in Indian equities and belief in the transient nature of the inflationary pressures in India, unlike the not-so-transitory (oops) inflation being witnessed in the US markets. Moreover, the damage on equities has been pretty grave over the last 3 months. We’d be buyers at falls, and we see no sense in cutting positions in equities during this fall.

RISK PROFILE

RISKY

SAFE

Aggressive

65-80%

20-35%

Balanced

40-60%

40-60%

Conservative

10-25%

75-90%


What are we changing?

We are changing the composition within debt by adding more corporate bonds, and reducing government bonds

As a pre-emptive measure to the possibility of further rate hikes, in the beginning of the year, we had done the following:

  1. Reduced debt maturity from 10 years to 5 years as lower maturity debt instruments tend to fall less when interest rates rise

  2. Added exposure to corporate debt to get that extra yield (mo’ money)

💡 Both these decisions worked super well. To further benefit from rising interest rates, we’ve now shifted our Corporate : Government ratio of debt from 25:75 to 50:50





What about the rest?

  • Supply chain disruptions and sanctions on Russia sparked inflation. However, central banks have raised interest rates, and fears of economic slowdown have elevated. This has resulted in commodity prices cooling off, which makes it necessary for us to hold on to equity exposure in the event of foreseeable improvements (please)

  • 75% large cap holding is in line with the bears mauling the market, thereby limiting downside risk

  • Minimal gold exposure due to no material upside and inflated prices

  • With the US market having had the worst half year in 52 years and highest inflation figures in 40 years, we say “no, thank you” to international exposure (for now)

What next?


As inflation continues to persist, the RBI most likely will increase rates further. Corporate earnings will get downgraded, valuations will de-rate further. The markets will look depressed for the next few months. But, things may turn out different if commodity prices cool off further, and optimism revives. For the markets, just the visibility of a positive turn is enough for a reversal.

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