What should your portfolio look like in 2019?

With nearly two months gone by in the year, we have already seen two major events in 2019. The budget was an aggressive political statement while the monetary policy stretched itself to give that 25bps edge to the industry. Of course, the mother of all events -- the General Elections – will be coming up later this year, but as of now the contours of a likely political formation are far from clear.

Whatever be the complexion of the new government, the economic reforms process is unlikely to be reversed. Also, any government will place a lot of emphasis on farm incomes, rural infrastructure, middle-class satiation, defence upgrades, etc.

This raises the question: How will these events impact your portfolio strategy in 2019?

Be selective on equities; themes will matter

The first step is to take a micro view. Ideally, your portfolio should have a beta component and an alpha component. The beta component should be predicated on broad stories that will benefit from the consumption boom. FMCG, private banks, and auto stocks could be the cases in point.

Then you come to the alpha aspect. Here you need to look at sectors that promise a turnaround. Sectors like PSU banks and capital goods that are in a sweet spot of growth and recovery would be the sectors to focus on. These may be slightly riskier compared to the beta plays but it is a calibrated bet.

Your debt portfolio must ideally focus on long-duration G-Secs

Quite a few debt fund investors burnt their fingers in government securities (G-secs) in 2018 due to the sharp rise in bond yields. However, 2019 is expected to be different. With the US Fed taking a dovish approach, the RBI has gone one step ahead and shifted the stance of its monetary policy to neutral. The RBI may be poised to cut rates once more and also push banks to transmit rate cuts to the borrower. Long-duration G-Sec funds would be your best bet as they combine safety and rate sensitivity. A key point to remember here is to avoid AA-rated credit opportunity funds. We have seen that lower-rated debt, being vulnerable, can impose huge liquidity costs. Stick to long-dated G-Sec funds to the extent possible.

You should actually add “a golden edge” to your portfolio

There has been a lot of discussion about gold. Broadly, don’t go overboard on gold as it is a hedge for your portfolio. If your gold allocation range is 10-15%, try to move close to the upper end of the range. Gold could be an interesting bet for two reasons. Firstly, with the Fed going dovish and halting rate hikes, the dollar could face resistance. This is generally positive for gold prices. Secondly, the trade war has created an atmosphere of uncertainty in the global markets and normally gold revels in such circumstances. Gold could be a surprise package in the current year and it is a must-have in your portfolio.

Other interesting asset classes to be added

Of course, if you are planning a second property, this is the time to seriously think about adding one to your portfolio. You don’t worry about notional rent and you can reinvest your existing property in two smaller properties. Don’t miss out on making the best of your tax-saving investments. The budget has made taxable income up to Rs5 lakh tax-free. If you add the benefit of the standard deduction, home loan, and benefits of Section 80C investments, you can save tax up to Rs10 lakh. Investments in tax-saving instruments suddenly seem to have taken on a whole new meaning.