Understanding economic indicators and their impact on balanced advantage funds in 2024

The year 2024 promises to be an eventful one from an economic standpoint in India. As the world heads deeper into the recovery period post the pandemic, various macroeconomic indicators will play a key role in shaping the performance of capital markets. Balanced advantage funds, with their flexible mandates, will have to navigate a dynamic environment. Read to analyze some of the key factors that may impact balanced funds.

Rising inflation

Consumer Price Index (CPI) based inflation has trended higher over the past year in India, breaching the RBI’s upper tolerance limit of 6% multiple times. High inflation erodes consumers’ purchasing power and squeezes corporate profit margins. While food and oil prices are major contributors currently, core inflation too is edging up.

RBI is expected to further raise repo rates in 2023 to rein in demand-pull inflation. Higher rates may slow economic growth and impact sentiment. Balanced funds need to find an optimal asset-allocation between equities and debt, balancing returns with downside protection. Inflation-linked bonds can provide some hedge.

Fiscal consolidation

The central government deficit has widened due to the pandemic and subsidies on food and fuel. There is expectation of fiscal prudence going into 2024 elections with a focus on strengthening public finances. Any tax collections buoyed by a recovery could help reduce borrowings. Lower issuances may lift bond prices in the short-term benefiting balanced funds’ debt component. However, fiscal austerity may also mean slower growth.

Corporate profitability

After a bumper profit reported for FY22, consensus estimates point to 15-20% growth in net profits for Nifty50 in FY24 led by banking, oil & gas and metals. A continuation of profit boom could support equity markets but any disappointments may increase volatility. Balanced funds need to identify quality stocks with pricing power.

Global impulses

Any recession in the US and EU due to aggressive rate hikes will have spill-over effects on India via exports, capital flows and business confidence. A relatively resilient domestic story can help counter external headwinds. Meanwhile, crude oil may remain at elevated levels over supply concerns denting the trade deficit. Balanced funds should stay diversified globally to mitigate single-market risk.

All these factors point to bouts of high volatility in 2024 that may challenge traditional 60:40 equity-debt allocation strategy of balanced funds. Here are some steps investors can take:

Systematic investment and mutual fund SIPs

Time in the market is more important than timing the market. Through SIPs in mutual funds, investors can ride out volatility and benefit from rupee cost averaging. Starting a monthly SIP in a balanced advantage fund from 2024 would be a prudent way to build wealth over the long-term. SIPs ensure investments are spread over different market conditions while regular redemption and switching during turbulent phases should be avoided.

Select funds with strong track record

Not all balanced funds are equal – some have proven ability to better navigate different economic cycles through dynamic asset allocation. Funds that have delivered both superior returns with lower risk compared to peers in the past 10 years of different market conditions deserve consideration. In-depth research on top funds’ past performance is crucial.

With increased uncertainties aplenty in the economic environment ahead, adopting a well-thought investment strategy focused on systematic investments in sensibly chosen balanced advantage mutual funds can help build wealth consistently over the long run. Careful research and staying invested as per one’s risk profile and goals become crucial for success.