What should be your asset allocation in the current market condition?

Market is currently under pressure and a lot of people might be thinking of exiting equities. In such a scenario, what should be your asset allocation? Let’s find out.

The Indian market (referring to Nifty 50) is showing a not so rosy picture and is on a downslide from the all-time high levels achieved on October 19, 2021. On November 15, 2021, it failed to move above this all-time high level. In fact, it successfully breached the low made on October 29, 2021, to make a lower low at 17,216 level. Presently, its support zone is between 17,216 and 17,453 levels, whereas its resistance zone is between the levels of 18,342 and 18,605. So, the next move of the market can only be confirmed when Nifty 50 breaks the above-mentioned levels on either side. That being said, it is observed that 100-day exponential moving average (EMA) and 50-day EMA acts like very good support.

Hence, unless the market moves below its 100-day EMA it would be difficult to conclude that the market is moving towards a big fall. If Nifty continues to make lower highs and lower lows would confirm a downfall. But technically speaking, the Nifty is into a correcting phase. Therefore, it is psychologically natural for an investor to worry and think about what asset allocation would make sense in the current market scenario?

We shall understand this in the following paragraphs.

When it comes to asset allocation, it is important not just to have asset allocation at the macro level, but also have it at a micro-level. Therefore, just deciding between equity and debt is not enough. It would be advantageous if you decide to allocate between largecap, midcap and smallcap on the equity side and between low duration, short duration and long duration for fixed income exposure.

We feel that in the present market scenario, you should have a portfolio that is more tilted towards equity. Every dip in the market would act as an opportunity to buy in equity. Of course, needless to say, that your buying in equity should be in a staggered manner. In the current market situation, we would propose to have 60 per cent equity and 40 per cent debt allocation.

So, if your portfolio in equity is higher than the above-mentioned allocation, then book profits and move into a safe play. However, if your debt portion is higher, then it would make sense to buy equity in a staggered manner to match the above-mentioned asset allocation. If you are managing your portfolio actively, then remember to review your asset allocation at least quarterly.