Bonds and gold have had a good run in CY25 and equity seems to have bottomed out after a bruising correction. Does that signal that equity will join the bull party and that all 3 asset classes should do well in the rest of CY25?
Dinesh says the opposite is more likely: bonds have already rallied a lot, perhaps discounting the next rate cut too. Returns from here on will be a lot more muted than last 6 months.
Similarly, gold has had a strong run in a Trump-induced chaotic environment – but that shock value is now ebbing, uncertainty on trade wars is reducing and with that, the case for gold is dimming a bit at least for the near term (rest of CY25) even as the longer term case continues to look good.
Equity does seem to have bottomed out, but with earnings growth very patchy and valuations not exactly cheap, there are only few pockets that look attractive. To make a case for a strong bull run in this environment is tough.
Rest of CY25 may thus be muted for all 3 asset classes – contrary to hopes of a risk-on rally across assets.
SBI BAF’s equity allocation model, which went down all the way to just 20% mid 2024 ahead of the correction, shot up to 60% by Feb 2025. The fund rode out the correction with minimal equity allocation and currently continues to have net equity in the high 50s.
Its MAAF – which had a 20% allocation to gold at the start of this year, has cut back its position to 12% as the gold rally looks like maturing.
Dinesh’s allocations to financials – which are higher than peers – started off due to paucity of many other options. He then added more financials as rate cuts opened up opportunities for NBFCs etc and today has around a third of the portfolios of the funds he manages invested in this space.
He is bullish on energy & utilities – especially gas distribution companies – which he says are underappreciated and are in fact a good contra bet.
He likes cement as sector consolidation now promises pricing power to the main players.
From a contra perspective, he likes metals stocks – they are benefiting from safeguard duties, they should report healthy earnings growth and perception of these stocks is very low – meaning significant re-rating prospects in the coming quarters.