Underweight on Equities? Nilesh Shah Recommends Large, Mid-Caps

Investors who currently hold a lower allocation to equities may consider gradually increasing their exposure, particularly through large-cap and mid-cap stocks, according to Nilesh Shah, managing director of Kotak Mahindra Asset Management Company.

Shah made the comments as global uncertainty linked to the ongoing West Asia conflict continues to pressure financial markets and trigger volatility in stock prices.

He advised investors to remain cautious and stick to disciplined asset allocation strategies rather than making aggressive bets during uncertain times.

Maintain Neutral Position on Equities

Shah said investors should avoid becoming overweight on equities during the current period of uncertainty.

Instead, they should maintain a neutral allocation based on their investment goals and risk tolerance.

“If you are overweight on equity based on your investment objective or risk profile, redeem holdings and move towards a neutral allocation,” he said.

However, investors who already hold a balanced allocation should continue their systematic investment plans (SIPs) but avoid making large lump-sum investments while markets remain volatile.

Opportunity for Underweight Investors

For investors who hold a smaller share of equities in their portfolios, Shah suggested gradually increasing exposure.

He said large-cap and mid-cap stocks could offer relatively more stability compared with other segments of the market.

“Within equity, investors can put slightly overweight positions on large and mid caps because they will be less volatile,” he said.

Shah added that markets are likely to remain volatile until there is greater clarity about geopolitical developments.

Focus on Domestic-Oriented Sectors

The investment expert also recommended looking at sectors that rely more on domestic demand and are less exposed to global oil price fluctuations.

These include:

• Banking and financial services
• Consumer durables

Such sectors may remain more resilient if global energy prices rise due to geopolitical tensions.

Debt Investments Should Remain Short Term

Outside equities, Shah advised investors to focus on debt instruments with shorter maturity periods.

He said rising fiscal deficits and inflation pressures could push interest rates higher.

In that environment, investors should consider:

• Arbitrage funds
• Short-term bond funds
• Money market funds

These options reduce exposure to long-term interest rate risks.

Precious Metals as a Hedge

Shah also suggested allocating a portion of portfolios to precious metals such as gold and silver, which often perform well during periods of global uncertainty.

He noted that gold prices tend to rise when interest rates decline and geopolitical risks increase.

However, he cautioned that investors should allocate only a limited share of their portfolio to such assets because they do not generate intrinsic income.

Markets Likely to Stay Volatile

Shah warned that equity markets may remain volatile as investors assess the economic impact of rising oil prices, inflation risks and geopolitical tensions.

However, he said markets usually adjust to global disruptions over time as supply chains evolve and economic activity stabilises.

In the long run, he added, investor discipline and balanced asset allocation remain the most reliable strategies for navigating uncertain market conditions.