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The Reserve Bank of India (RBI), in a surprise move on Wednesday, decided to hike repo rate by 40 basis points (bps) to 4.4%, which can be seen as a precursor to another 50-75 bps interest rate hike this year. This has made risk mitigation in the current economic environment quite challenging, and high net-worth individuals (HNIs) are vulnerable.

With the global macroeconomic picture getting grim and markets turning volatile, most prudent affluent investors have already readjusted their portfolio to preserve capital.

According to Asheesh Chanda, founder and chief executive officer of Kristal.AI, a digital-first global private wealth management platform, wealth preservation is a bigger concern for investors, than beating inflation at this point. 

Experts say that inflation will remain a concern over the next 12 months, especially when it comes to equity markets, and investors are not preferring to buy the dip now, as there are significant downward risks on stocks.

“There is reallocation to value from growth stocks for money that is invested. However, new money is going to assets classes that have low correlation to equity markets, such as life settlement funds, commodity arbitrages, long-short strategies and private market deals. Pre-IPOs deals have also become more attractive in the current environment," said Chanda.

The expert suggests avoiding small-caps, high-yield, lower quality and leveraged investments and rather focus on high-quality, mega-cap stocks that are less rewarding, but also less risky.

“If corporate earnings continue to be solid, which we are seeing right now, we don’t see any long-term impact on the markets. On the equity side, we would actually ask people to continue holding their allocation and maybe use this dip to actually raise the allocation on equities," says Prateek Pant, a chief business officer at WhiteOak Capital Asset Management.

On the debt side, rich investors started bracing up for potential rate hikes six-nine months back and aligned their portfolios accordingly.

“Our investors were not locking in yield for a longer period of time, and making sure that if they were locking in yield, they were locking in at a certain part of the curve, which was the four-six year maturities on the corporate bond side. So we were using the 2025/26/27 target maturity funds and allocate some kind of money so investors didn’t have any mark-to-market risk, and were getting a kind of fixed return in that way," said Munish Randev, founder, Cervin Family Office. The expert expects one or two more rate increases due to demand side as well as some supply side inflation. 

“Right now we are suggesting three things. Short-term should remain in arbitrage kind of opportunities, because we don’t even want to expose ourselves to the shorter end of the yield curve right now. For the medium part, we use target maturity funds predominantly at this stage. And for any yield kickers, we are still using Invits," said Randev. Experts also say that Real Estate Investment Trusts (REITs), which are hybrid asset classes, are proving to be good income generators as they benefit from rising inflation. Some affluent investors also increased allocation to gold, which is a proven safe-haven investment instrument. Some experts are of the opinion that commercial real estate (CRE) has also been one of the preferred asset classes for HNIs and institutional investors.

“A-grade CRE assets attract multi-national tenants with long-term leases (nine-15 years). This enables investors to earn stable monthly cash flow in the form of rental income and benefit from long-term capital appreciation. The favourable risk-return profile of the asset class makes it a good fit for a diversified portfolio and fixed income solution," said Aryaman Vir, founder and CEO, Myre Capital, a neo-realty tech-enabled fractional ownership platform.

 WhiteOak Capital’s Pant suggests that the most important thing right now is not to try and time the market. “Be clear about what is your long-term allocation and accordingly, keep committed to that," he suggested.

Financial advisors warn that retail investors shouldn’t try to emulate HNIs’ strategy. “HNIs are slightly more sophisticated investors where they understand the risk. Along with understanding the risks, they also have means to deploy more capital when prices are lower, which retail investors probably might not be able to do. So, in my opinion, strategy for a retail versus HNI should be very different," said Kirtan Shah, founder and CEO, Credence Wealth Advisors.

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