Avendus Wealth Management is recommending that investors maintain 35% of their capital in cash as markets move from liquidity-driven gains to an earnings-focused phase. This strategy aims to provide flexibility against potential volatility from global risks, while the firm maintains a constructive medium-term outlook for Indian equities.
Avendus Wealth Management has advised its clients to hold a 35% cash buffer in their portfolios as the Indian stock market enters a transition phase. While the firm remains positive on the medium-term prospects for equities, it highlights that the era of easy, liquidity-driven gains is fading. In the coming quarters leading into FY27, investors are expected to see a shift where stock price performance becomes more closely tied to actual profit delivery rather than valuation expansion.
Prioritizing Earnings and Valuation
Shravan Sreenivasula, Head of Investment Solutions at Avendus Wealth Management, emphasized that future returns will rely on a company’s ability to meet earnings expectations. As valuation multiples—the price investors pay for each rupee of profit—are unlikely to expand further, the firm suggests shifting focus toward companies with strong business fundamentals. Investors are cautioned against assuming that market-wide growth will lift all stocks, making active stock selection more important than broad market participation.
Navigating Sectoral Challenges
The firm has flagged several sectors where it expects companies to face pressure regarding profit delivery. FMCG is noted as being particularly vulnerable to demand slowdowns. Other sectors facing challenges include consumer durables, apparel, aviation, pharmaceuticals, and ports. These difficulties are attributed to various factors such as margin normalization, where company profits return to historical averages after a period of high performance, as well as pricing difficulties and softer consumer demand.
Strategic Portfolio Adjustments
To manage these risks, Avendus has observed that its clients are increasingly diversifying their holdings. Over the past three months, there has been a noticeable shift toward REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts) to capture stable income. While domestic equities remain a core focus, particularly in sectors like BFSI (Banking, Financial Services, and Insurance) and manufacturing, the firm has tempered its enthusiasm for gold and duration-sensitive fixed-income products due to recent price rallies and changing interest rate expectations.
Factors Influencing Volatility
Maintaining a cash position is presented as a defensive move against several external uncertainties that could disrupt market momentum. These include ongoing geopolitical developments, fluctuations in global trade negotiations, persistent inflation concerns, currency instability, and potential weather-related impacts on the economy. Investors should monitor how these macro-level factors affect corporate margins and demand patterns in the upcoming quarterly results. The firm maintains that while these factors may increase short-term volatility, they do not necessarily change the overall trajectory of the market.