Indian and global stock markets are witnessing high volatility in October. As of October 25, the large-cap equity benchmark BSE Sensex is down nearly 7% in the past month. In an exclusive interview with Business Today, he shares his insights on how to navigate the current market volatility and investment strategies for high net worth individuals (HNIs) and high net worth individuals (UHNIs).

Bhave discusses optimal asset allocation, the potential impact of the upcoming US election on global markets, and the role of gold and silver as safe haven assets. He also presents a strategic approach to invest Rs 50 lakh over the next few years and gives his outlook on foreign investment and growth prospects of the Indian economy. Edited excerpts:

Q). Equity markets are experiencing high volatility. Where should HNIs and UHNIs allocate their money?

Abhijit Bhave: In a volatile market, HNIs and UHNIs should focus on realigning their portfolios based on their asset allocation. For example, if someone is underweight in stocks, they can add an allocation to stocks and take advantage of current market corrections. A balanced mix of stocks, fixed income, and alternatives like gold can help mitigate long-term risks. Within stocks, it is advisable to stick to large companies with strong fundamentals, especially in sectors like banking and financial services and healthcare, which offer resilience. Fixed income instruments such as high-quality corporate bonds can provide a safety net. At the same time, the allocation of long-term debt, including long-term bonds, gilt funds and long-term debt funds, can provide the double benefit of current higher interest rates and possible future capital appreciation, as the RBI begins the rate cut cycle next year. Finally, a 5-10% allocation to gold can serve as a hedge against inflation and global uncertainties.

Q). Should investors add gold and silver to their portfolios at current levels? If yes, why and by how much?
Abhijit Bhave: Yes, adding gold and silver to a portfolio makes sense in today’s environment of geopolitical uncertainty and inflationary pressure. Gold, in particular, serves as a crisis currency and hedge against the impact of global events that may lead to market corrections. Silver, on the other hand, benefits from both its industrial demand and its role as a safe haven. Investors should consider allocating approximately 5-10% of their portfolio to these precious metals, with a primary focus on gold.

Q). How would you suggest investing Rs 50 lakh in this market to generate superior returns over the next 2-3 years?
Abhijit Bhave: To generate higher returns over the next 2-3 years, Rs 50 lakh can be spread across different asset classes, with a bias towards equities. I suggest allocating 70% to equities, around 20-25% to highly rated debt instruments for stability and 5-10% to gold as a hedge.
Within the equity side, a core and satellite portfolio approach would be appropriate. Around 50% of the equity allocation should be high quality large cap stocks. The remaining share can be divided, with 20% in multi-cap or flexi-cap portfolios, 20% in mid- and small-cap stocks and 10% in sectors like banking, financial services and healthcare, which should outperform. .

Q). What could be the possible impact of the US elections on the global and Indian markets?
Abhijit Bhave: US elections traditionally create volatility in global markets. The outcome can influence trade policies, interest rates and geopolitical trends. For Indian markets, if the US moves towards fiscal tightening or protectionist policies, it could dampen global liquidity and lead to outflows from FIIs. However, if the election results indicate a focus on resuming global trade and economic collaboration, it could create a favorable environment for Indian stocks, particularly in export sectors like IT and pharmaceuticals.

Q). What are your expectations regarding FIIs? Could China, with its lower valuations, attract significant foreign investment away from Indian stocks?
Abhijit Bhave: While China’s lower valuations may look attractive, especially given recent fiscal and monetary measures, India’s long-term growth prospects, supported by favorable demographics, digital transformation and environment pro-growth policy, remain attractive for FIIs. China also faces structural challenges, including political risks and regulatory uncertainty, which could discourage foreign investment in the long term. Therefore, while there may be some temporary outflows of India’s IFIs into China, India’s strong consumption and stable regulatory environment will continue to attract foreign capital.

Q). What are your expectations regarding the Indian stock market and the economy as a whole?
Abhijit Bhave: The Indian stock market is poised for steady growth, driven by strong domestic consumption, ongoing reforms and infrastructure development. Sectors such as financial services, healthcare and some IT companies are expected to continue to perform well. The economy as a whole will likely benefit from government initiatives to boost growth in manufacturing, digitalization and exports. However, geopolitical events and the risk of rising inflation could present short-term challenges. Overall, the outlook remains positive for long-term investors who focus on quality stocks.