Your Money: A tactical portfolio for uncertain times

Tactical portfolios come into play when new opportunities are thrown up by the changing ecosystem.

Your Money: A tactical portfolio for uncertain times
This is where portfolio construction comes in place. It's not about buy and hold or buy today and sell tomorrow or even intra-day trading. Having a core and tactical portfolio separately can be the approach.

For equity investors, the last two years were a roller-coaster ride. As the pandemic stuck, stocks plunged and doomsday was the prediction. But then, the stock market recovered smartly and many new investors took to direct investing through online trading platforms. Investors rode the liquidity wave as the benchmark Sensex gained new highs.

In the last two years both young and old investors have witnessed cycles never seen in the past. So, how do we go about constructing a portfolio in these volatile times? Investors must keep in mind that the basics of investing such as liquidity, time horizon and asset allocation do not change.

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In July, the BSE Sensex delivered a return of 8.6%. And for the one-year period between July 2021 and July 2022, the return was 9.60%. So what do you make of this? If you look at point-to-point returns on a monthly basis, you will be elated. And for annual returns, you will scoff at the mere additional 1%.

Portfolio construction

This is where portfolio construction comes in place. It’s not about buy and hold or buy today and sell tomorrow or even intra-day trading. Having a core and tactical portfolio separately can be the approach.

As the Indian economy was growing, few companies delivered returns of over 100 times. But then, would you have the patience to buy, accumulate and hold every time when these companies showed a temporary blip in performance? This is where a core portfolio would have generated the profits in the portfolio and seen the corpus grow.

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Tactical portfolios can come into play where new opportunities are thrown up by the changing ecosystem. Opportunities in the cyclical, infrastructure or technology sectors can come into play depending on the prevailing ecosystem. Indians are increasingly looking at financial products including mutual funds and direct equity.

Multiple options

Today, there are multiple options to create wealth. However, it can drive investors towards short-term trading opportunities. It is important not to forget to build a portfolio with a multi-decade outlook and not miss the multiple returns that companies in the growth stage have delivered.

The writer is managing partner, BellWether Associates.

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