Focus on portfolio rebalancing; avoid cyclical sectors, increase allocation to gold: Anil Rego of Right Horizons PMS

Expert view on markets: Anil Rego, founder and fund manager at Right Horizons PMS, says investors should consider allocating funds to defensive sectors such as healthcare and consumer staples, which are less affected by economic cycles and trade conflicts. He also noted that increasing exposure to gold could be a prudent move. In an interview with Mint, Rego shared his views on the sectors to watch and avoid and his investment strategy at the current juncture. Below are edited excerpts from the interview.

How should Indian investors brace themselves for a deeper trade war?

Investors should diversify their portfolios. They should spread investments across sectors, especially domestic-focused sectors, which may be more resilient during trade tensions, while cyclical sectors might experience more volatility.

Focus on domestic growth. As global supply chains shift, sectors like manufacturing and electronics in India could benefit. Look for opportunities within industries supported by India’s self-reliance initiatives.

Gold tends to be a safe-haven asset during geopolitical uncertainty, so increasing exposure to gold may provide stability.

Invest in defensive sectors like healthcare and consumer staples, less affected by economic cycles and trade conflicts. Stay informed about government actions that may create investment opportunities, such as fiscal stimulus or export incentives.

What areas should we look at, and what should we avoid at this juncture?

Areas to look at:

(i) Domestic manufacturing and infrastructure: With the “Atmanirbhar Bharat” initiative and global supply chain shifts, sectors like manufacturing and electronics could grow.

(ii) Defensive sectors: Healthcare, consumer staples, and utilities are typically resilient in volatile times. These sectors can provide stability.

(iii) Gold and precious metals: Gold tends to perform well in times of geopolitical tension and market instability. Increased allocation to gold could be prudent.

(i) Cyclical sectors: Autos, metals, and industrials are often more affected by trade wars and economic slowdowns, and they may face higher volatility.

(ii) Export-dependent companies: A potential slowdown in global trade may cause companies reliant on exports to struggle.

(iii) Highly leveraged companies: Firms with significant debt may face challenges in an environment of rising interest rates and slowing growth.

Are we likely to see a longer period of moderate gains?

Given the current global economic climate, including trade tensions, inflation concerns, and fluctuating commodity prices, moderate gains are possible.

Trade war risks, slow global growth, and geopolitical tensions can weigh on market sentiment, limiting significant market rallies.

While some sectors will likely see growth, the broader market gains could be more tempered. Indian corporate earnings are likely to grow at a moderate pace, supported by sectors like consumer goods.

Industries, more sensitive to global economic cycles (autos, metals), may underperform, keeping the overall market growth steady but not explosive.

India’s CPI inflation is currently easing. In March 2025, retail inflation slowed to 3.34 per cent, the lowest in over five years, and the RBI is implementing accommodative monetary policies to support economic growth.

As foreign investments rise and inflows increase, we believe markets will likely perform better and post healthy gains over the next three to five years.

Is it time to trim exposure to equities? What should be our investment strategy?

While the broader market remains supported by domestic liquidity and a stable earnings outlook, the risk-reward balance is not as favourable as a few quarters ago.

Investors should focus on rebalancing their portfolios, reducing overweight positions in equities, and increasing allocations to large-cap or multi-cap funds for greater stability in the near term.

Dynamic asset allocation can also help manage volatility without fully exiting the market.

Gold and short-term debt funds also deserve a higher allocation, as they offer diversification and act as a hedge against global uncertainties.

Importantly, SIP should continue uninterrupted, as it helps average out costs over time and capture long-term growth. The key is to stay invested, but with a more defensive and well-diversified stance.

Apart from Trump’s tariffs, what are the key triggers for the market?

India’s equity market is largely driven by a combination of domestic and global triggers beyond just US trade policy.

Corporate earnings remain a major driver, with particular focus on the performance of banks, capital goods, and consumption-related sectors.

The Reserve Bank of India’s monetary policy stance, especially its management of liquidity and inflation, is being closely watched.

Crude oil prices staying below $70 per barrel are particularly beneficial for India, given its status as a major oil importer; lower oil prices help reduce the import bill, contain inflation, and improve the fiscal and current account balance.

Additionally, CPI remaining within the RBI’s target range supports a lower interest rate cycle, which is growth-positive.

A weakening US dollar is also a key tailwind, as it typically boosts foreign portfolio inflows into emerging markets like India, supports the rupee, and eases external debt pressures.

However, any reversal in these trends, such as a sharp rise in crude prices, a resurgence in inflation, or a stronger dollar driven by a hawkish US Fed, would act as clear headwinds.

Such changes could lead to tighter liquidity, pressure on the rupee, reduced FPI inflows, and a reassessment of equity valuations, especially in interest-rate-sensitive and import-dependent sectors.

Hence, while current conditions are favourable, they remain vulnerable to global shifts.

Do you think the US Federal Reserve can cut rates in May?

Market participants have shown mixed expectations regarding a rate cut in May. At one point, traders assigned a 56 per cent probability to a rate cut, influenced by concerns over economic growth and inflation dynamics. However, these expectations have fluctuated in response to evolving economic data and policy signals.

Federal Reserve Chair Jerome Powell has emphasised a cautious approach, indicating that the Fed can afford to wait before making any changes to interest rates. He highlighted the need to assess the economic impact of recent policy developments, including tariffs and other fiscal measures, before adjusting monetary policy.

Given the current economic landscape and the Fed’s cautious stance, the Federal Reserve appears inclined to monitor incoming data and assess the broader economic implications of recent policy changes before altering its interest rate policy.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of the expert, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.