Cautious in near term on rising interest rates, inflation, says IIFL Wealth chief

Market Outlook

Karan Bhagat, founder, managing director, and chief executive officer, IIFL Wealth & Asset Management, is cautious in the near term due to a hardening of interest rates and red-hot inflation.

In a recent interview to CNBC-TV18, Bhagat shared his outlook on equity markets, asset allocation and global macros. Edited excerpts:

Restrategising in the interest rate hardening scenario

We are very strong proponents of both strategic and tactical asset allocation for the longer term. On the strategic asset allocation front, we very closely follow both prices to earnings and price to book. Given where both were over the last 18 to 24 months, we’ve been largely 70-80 percent invested with 20-30 percent in cash.

At approximately 15,800-16,000 level, we would have added around about five percent in equity. But otherwise, we would still be maintaining a broadly 15-20 percent level of cash across our wealth management plans on the equity side.

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On the fixed income side, with the interest rates hardening and the longer-term yield moving up north of seven and a half to seven points, we have started allocating some money to the long-term curve.

It can be somewhere between 7.5 to 8.1 over the next 12 to 18 months but we are fairly comfortable for the longer term.

On global macros

On global macros, both interest rates and inflation are going to be a bother for the next six to 12 months. There are a lot of other structural problems in the world, including collateral impacts of the Russia-Ukraine war.

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Most importantly, there are events when you see large corrections whether you see it in bitcoin, in private markets, or see it in tech, eventually, over the next three to six months it consequently has an impact.

As a firm, we are fairly cautious over the next three to nine months but very constructive over the medium to long term from India perspective. The US will be a little bit more challenged over the next three to six months.