With the rally over the past 1.5 years, Niraj Kumar, chief investment officer at Generali Central Life Insurance Company, said the most pertinent way for investors to strategise their portfolios would be to maintain discipline of investing and not succumb to greed and fear.

From an investment standpoint, there are still opportunities galore, with the Indian economy set to spur growth in consumption and investment, said Kumar who has more than 18 years of experience in portfolio management across equity and fixed income assets, equity analysis, credit risk and macroeconomics. He advised keeping large allocation towards long-term secular growth sectors. Edited excerpts from an interview:

The backdrop for earnings has turned quite favourable versus Q1 of FY22. Sequentially, we are likely to see strong earnings momentum, aided by normalisation of economic activity post the second Covid-19 wave and the vaccination drive. The economy is showing strong signs of recovery, as exemplified in high-frequency indicators such as robust advance tax payments, strong GST collections, e-way bill generation and electricity and petroleum product consumption.

This strong momentum should percolate into strong corporate earnings this season. Among sectors, we anticipate BFSI (banking, financial services and insurance) to post strong recovery in collection efficiency and reduction in credit costs, followed by a significantly positive commentary on outlook. IT, which has been a beneficiary of digitisation, is expected to continue to do well in growth though margins may get under pressure because of wage hikes and higher attrition. Metals should also deliver robust earnings on the back of record high commodity prices. However, end users of commodities i.e., sectors such as automobiles, cement, and consumer durables may show some earnings pressure, given the significant margin headwinds.

With the Nifty 50 hovering around 18,000 and an almost one-way steep rally over the past 1.5 years, we reckon the most pertinent way for investors to strategise their portfolio would be to maintain discipline of investing and not succumb to market emotions of greed and fear. Clearly, investors who are looking to invest now despite the incumbent high levels should take a long-term view to make reasonable returns, irrespective of intermittent corrections.

Besides, investors need to follow a disciplined asset allocation strategy in line with their longer-term goals and rebalance their portfolios at regular intervals, along with maintaining a diversified portfolio at any point in time. This would give them the ability to take a deep plunge in the markets whenever there is a dip or pandemonium. A case in point being investors who bought at the peak in 2008, and despite multiple deep and significant corrections over the next 13 years, have made high single-digit returns (significantly better than all other asset classes), which testifies to the long-term capability of the equity markets.

There are still opportunities galore. At this juncture, the Indian economy is set to spur the wheels of the growth engine, on both the consumption and investment sides. We reckon the government and central bank have synchronously laid the foundation for a growth-conducive platform, which would aid in a major economic reset for India. Thus, to leverage this upcycle opportunity, domestic cyclical sectors such as banking and financials, metals and mining, capital goods, infrastructure and cement would be the best play as they would be direct beneficiaries of the cyclical upswing in the economy.

Besides, pockets such as telecommunication. can offer a good investment opportunity. PSUs as a pack offer deep value, good balance sheets and attractive dividend yields. A few successful divestments can be a gamechangers and make sentiment extremely favourable for the entire PSU pack.

Commodities should do well, given the tectonic shift in the thought process of the largest manufacturer and consumer of metals globally i.e., China. From providing subsidies for manufacturing and exporting, to withdrawing subsidies and putting incremental taxes with the aim to reduce carbon emissions and controlling pollution, the operating environment of the sector has changed significantly. Our Indian companies across most commodities are ranked among the lowest quartile in terms of cost of production and hence can benefit disproportionately from the rise in commodity prices.

Nonetheless, we would urge investors to take a holistic portfolio call and allocate some portion towards these sectors, while keeping large allocation towards long-term secular growth sectors in India such as consumer discretionary, IT, and BFSI.

At the incumbent levels, the markets seem expensive optically if one were to look at them through the prism of traditional valuation parameters such as price-to-earnings ratio. However, while gauging market valuations, one must be cognizant of the current overall macro environment.

Given the sharp recovery in the economy, global liquidity and lower interest rates, the markets may continue to remain expensive as the economy is going through a significant change. Global interest rates are at a historic low, which, despite bottoming out, are likely to remain in a comfortable range in the medium term.

The balance sheet of corporate India is looking its best in almost a decade. Corporates across sectors have used the conducive market environment to fortify their broken balance sheets. All costs have been relooked at, capex has been focused and equity has been raised, which has led to significant deleveraging of balance sheets, leading to premiumisation of valuation.

Nonetheless, given that growth and liquidity are likely to normalise, market valuations will be more a function of rising corporate profitability and hence it is imperative that an event like Evergrande shouldn't impede the overall global recovery process that is under way.

Should one be cautious now or can one still invest at current levels? Is it a multibagger story?

The stellar performance of the real estate sector in the recent past has been a confluence of multitude factors. The government's thrust in providing the requisite impetus to the sector by way of policy reforms, stamp duty cuts, lowest interest rates in over a decade, the aspirations of consumers to upgrade their homes with work from home being the new normal have all aided the sector rally.

Nonetheless, real estate as a sector has been inadequately represented in the benchmark equity indices and has seen under-ownership by institutional investors. Thus. given the lower free float in the sector, any large fund flow into the sector results in disproportionate movement in stock prices.

Real estate as a sector holds paramount importance from an economic growth and financial inclusion standpoint. As the economy becomes larger and grows faster, the need for real estate and homes will also rise commensurately.

As far as the potential investment opportunity is concerned, we reckon that real estate is coming out of a long bear market and is still in its early stages of recovery. All the ingredients of a sustainable recovery are in place. However, investors need to be cognizant in picking their stocks as the sector is not among the best in terms of corporate governance.