My Asset Allocation Strategy (Indian Market)

Cash - 40%
Bonds - 20%
Fixed deposit - 20%
Gold - 5%
Stocks - 10% ( Majority of this in dividend funds)
Other Asset Classes - 5%


My belief is that stocks are relatively #overvalued compared to bonds and attractive buying opportunities can come along after 1-2 years. In a deflationary scenario no asset class does well other than U.S bonds, the U.S dollar and the Japanese #yen, so better to be safe than sorry with high quality government bonds and fixed deposits. Cash is the king always. Of course this varies with the person's age.

Asset Allocation Strategy - Indian Market http://t.co/BIh2Q4yhuw pic.twitter.com/mJO6DInazm

— samuelR (@RajveerRawlin) September 6, 2015

Very Bad Sign When Markets go Down on Rate Cuts

It is a very bad sign when markets go down on good news. While the rate cuts from the RBI could be construed as a good sign in the short term, it is also a tacit admission to rapidly slowing growth in the future. Given the stock market is a discounting mechanism slowing growth and earnings downgrades are not factored into current stock prices and more declines are likely in the future as equity markets factor in a global recessionary outlook caused by rampant deflation.



Ultimately these rate cuts do also signal Rupee weakness versus the dollar in the long term and that most certainly wont help our deficits and the ambitious targets for the fiscal deficits proposed in the recent budget and our GDP estimates will mostly likely come down to the 5-6 % mark for the upcoming year. All in all a very negative outlook for equity prices in the upcoming year.

Major Sell off likely post the budget

yes the budget is here but that's where the good news ends. Markets appear overvalued at trailing P/E's of well over 22.  Have a look at the data below:

2008 GDP - 7.5%, Dollar/Rupee - 42, Stock market Peak January - 6350, P/E -24, 3 month return from Jan 08  < -30%
2015 GDP - 5.5%, Dollar/Rupee - 62, Stock market Peak till date - 9119, P/E -24, It remains to be seen how much of a decline will occur, as of now -6.0%.



So clearly the stock market has advanced on weak fundamentals and rapidly deteriorating macros and no matter how great the budget, a substantial sell off beckons.