But according to Nasser Salim, Managing Director at Flexi Capital, investors who diversified beyond traditional equity mutual funds have managed to protect returns and even generate alpha during this difficult phase.
Salim said categories such as gold ETFs, silver funds, multi-asset funds and international exposure have performed far better than plain diversified equity funds over the past year and a half.
“It was not about stock selection, the period was about category selection,” Salim said, pointing to the strong performance of hybrid and non-equity products.
He noted that gold and silver funds have delivered strong returns, while multi-asset strategies benefited from heavy allocations to precious metals and selective exposure to utilities and PSU stocks.
Among diversified equity categories, Salim highlighted a few outliers that managed to outperform despite the weak market environment. He said flexi-cap funds with global exposure did relatively well as investments in large US technology companies helped offset weakness in Indian equities.
He also pointed to large-cap value-oriented funds that benefited from exposure to quality private sector banks such as ICICI Bank and HDFC Bank.
Looking ahead, Salim believes investors may need to look beyond traditional diversified funds if markets remain range-bound. He said tactical themes could play a bigger role in portfolios, especially for investors willing to take measured risks.
Salim identified banking and financial services, consumption and healthcare as three key sectors that could outperform over the medium term.
On banking, he said private sector banks are currently trading below long-term valuation averages despite improving asset quality and healthy earnings growth expectations. He believes this creates a favourable setup for a potential mean reversion trade.
Within consumption, Salim sees opportunities emerging from improving rural demand and stronger spending trends across segments such as FMCG, automobiles and consumer durables.
He also remains constructive on healthcare and diagnostics, calling the sector a defensive play with attractive valuations after a recent correction.
Salim added that investors should continue maintaining a balance between core diversified holdings and tactical satellite allocations rather than making aggressive sectoral bets.
For full interview, watch accompanying video
