How To Bulletproof Your Portfolio Against Uncertainty

Global uncertainty almost always hits local markets negatively, and India is no exception. From the subprime crisis in the US to the Russia-Ukraine war to the enhanced tariff imposition by US President Donald Trump which can affect international trade in a big way (though the tariff moves have been paused now), such events lead to volatility in markets worldwide.

The effect such events have on the markets impact the portfolios of retail investors directly. More and more people in India are equity investors. The proof is in the pie—the numbers of demat accounts and mutual fund folios have surged in the past three to four years.

In such times, the key question for Indian investors is how to build a portfolio that weathers such market storms without being affected in a big way. Let’s explore some of the factors that can help investors bulletproof their portfolios against uncertainties.

Choose Quality Over Momentum

Sticking to quality stocks is always advisable, but it volatile times, it can prove to be a defining strategy. It makes sense to prioritise companies with strong balance sheets, robust cash flows, and sustainable return on equity. Stronger companies with low debt and established governance norms are likely to show resilience in the face of volatility over the long term. They are also likely to recover faster after any economic downturn.

At the same time, stay away from stocks that may be riding the momentum but may not be able to withstand economic shocks that may lead to tightening liquidity.

A bulletproof portfolio needs to rely on sturdy companies whose fundamental strength can anchor your investments through bear runs.

Stick To Resilient Sectors

Just like stronger companies can provide stability to your portfolio, stronger sectors will bode well for it. Find stocks that belong to sectors that are stable. In fact, sectors with a domestic orientation in globally uncertain times may also prove to be diamonds.

For example, in India, consumer goods (FMCGs), pharmaceuticals and healthcare, among others, are likely to stay stable even in uncertain times. People continue to buy daily goods and go in for health check-ups, irrespective of the direction the economy is taking.

Banking and insurance (BFSI) companies can also be resilient in the Indian context as the largest banks and insurers here are strong companies with a large domestic customer base. In India, telecom is another sector that seems to have predictable cash flows.

On the flip side, staying away from sectors that can get affected by global trade would make sense. Examples include the IT sector and companies that are focused on exports, especially at a time when high tariffs can threaten their margins. Given that there’s only a pause on tariffs, which can rear their heads again, it makes sense to choose wisely at this critical time to bulletproof your portfolio against global headwinds.

Know That Cash Is King

It also makes sense to keep a portion of your portfolio in cash, especially in uncertain times. Such uncertainty can also lead to job losses and other crises, when having cash will be nothing less than a boon for you.

Moreover, a falling market can open up buying opportunities for which you would need cash. For instance, if a high-quality stock that corrects 20-30 per cent, you would want to include it in your portfolio. Buying at a lower price would mean larger benefits at a later stage.

Ensure you have enough emergency fund for your needs in case there’s a job loss or other uncertainty, and keep some extra to catch opportunities. Be tactical about it depending on the size of your portfolio and your needs. If you are falling short on cash, trimming your exposure to overpriced stocks may make sense.

Similarly, cashing out from sectors that may have run up but are unlikely to hold those positions for a long time may be tactically beneficial. Conversely, adding positions to sectors that may not be doing well but are poised for recovery will be a prudent move.

Rebalancing Is Rewarding

The key to successful market investing is buying low and selling high, so be careful about the valuations of a stock or sector when rebalancing your portfolio. But when doing so ensure you choose a quality stock, and don’t just settle for any stock that is cheap. Have the patience to wait for the right entry and exit points. You can also achieve this by looking at the overall asset allocation of your portfolio. Move to other assets when you are unsure about equities. How gold performed recently is an example about how a different asset can diversify risk and come in to rescue the portfolio and make it immune to uncertainties.

Conclusion

Building a bulletproof portfolio is not a one-time but an ongoing task. Therefore, reviewing your portfolio at regular intervals can help you keep it in robust shape. Sticking to your core strategy in view of your financial goals, taking some tactical steps when it comes to accumulating stocks in volatile times, and having the discipline to not have a kneejerk reaction can help you tide over volatile times. Past data shows that disciplined investors have reaped benefits in the long term, riding on a bulletproof portfolio built not just with patience but also tactical and strategic allocations. Consult a financial advisor if you think it’s too difficult for you to do it yourself.

Article is contributed by ICICI Securities Research Team | This is not an Outlook Money feature

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