MW: Tracking Asset Classes - July
All views are personal and for educational purposes only, please do your own research before investing and trading
Hi!
Manifest Wealth is back after it’s short break with 4 new segments (which would be revealed week by week this month) - all focused with one goal in mind - to make your life easier and make smarter, data-backed decisions.
The first segment is all about asset class performance and cycles!
Let’s Begin!
Equity
NIFTY recently broke it’s all time high and is currently displaying strong momentum (as evident with the SMA).
A quick study of NIFTY’s monthly return between 2003-23 reveals that returns for the month’s where NIFTY achieves an all-time high and for the following month is, on average, higher than the average monthly return of NIFTY.
In simpler terms, seeing how NIFTY has made an ATH in June end, it’s in good probability to assume that this month NIFTY’s return should ideally be positive.
Bonds
India’s yield curve although had become steep earlier this year, has begun flattening again, although it has also parallelly shifted downwards as compared to 6M ago.
Compared to last month, it has become flatter while also shifting parallelly shifted upwards, which can be a cause of concern.
The 10-2Y Spread also shows is at its lowest in the past 5Y, again signalling caution.
The US yield curve remains inverted, infact having inverting even further as compared to last month and 6M ago and the 10-2Y is at its 30Y historic lowest.
Simply put, both the yield curves currently signal caution when it comes to the economy.
The silver lining for this in India however is that the rates are still elevated and attractive around 7.0% to 7.5% - locking that in for long term via constant maturity funds could be a good idea.
Gold
In the past, Gold (INR) / NIFTY Ratio has spiked at times of underperformance / crashes from NIFTY and the subsequent rally usually has brought it to normal levels - currently there’s no extended spike.
Conclusion
While the surge in NIFTY to ATH is certainly good news and the momentum can in good probability be extended to another month, other metrics show signs of caution when it comes to being overly exposed to equities.
In terms of asset allocation, I’d continue my SIPs as it is (as always) but personally would avoid large fresh sums into equity.
Alongside that, it may not be a bad idea to lock-in the attractive rates in debt markets through constant maturity funds incase one is looking to increase debt allocation.
Adding some exposure to gold also may be a good idea incase debt allocation is satisfactory and there’s cash lying around.
Until next time, keep Manifesting Wealth!
PS: feels good to be back
Disclaimer 1: All above views are purely for educational purposes and are not to be taken as investment advice. Investment or trades taken of any kind based on this are solely the person’s risk and I bear no liability. Please consult a financial advisor before making any investments. All investments are subject to market risks.
Disclaimer 2: The views presented above are mine and not of any organization(s) I work with / am employed at
Sources:
TradingView
Trading Economics
NSE
Investing.com
World Government Bonds