Rs 10 lakh to invest this Diwali? Why experts favour largecaps and debt for a 5-year horizon

Investors entering the new Samvat face a market that is neither cheap across the board nor uniformly expensive, leaving one wondering whether to chase assets that have already delivered strong returns or allocate more capital to segments that have remained out of favour.

Market experts are leaning toward a relatively defensive portfolio for investors with a five-year horizon, with large cap equities and debt forming the core. Midcaps and smallcaps may offer long term wealth creation opportunities, but their elevated valuations call for selectivity. Gold remains a hedge, while international equities may have a limited role in diversification.

For an investor willing to deploy ₹10 lakh, Ambit Capital’s Nitin Bhasin and Bharat Arora suggest allocating ₹5 lakh, or 50%, to large-caps; ₹2 lakh, or 20%, to debt; ₹1.5 lakh to mid- and small-caps; ₹1 lakh to gold; and ₹50,000 to international equities.


The allocation reflects a cautious view amid geopolitical uncertainty, rising inflation and a slowing growth environment.

“Large-caps: 50% – Prefer firms with reasonable valuations and resilient earnings estimates,” Bhasin and Arora said. They described debt as offering an “attractive risk-reward” as interest rates approach their cyclical peak.

They would consider increasing exposure to mid- and small-caps once valuations normalise and earnings visibility improves. A reassessment of the growth outlook after the second half of FY27 would also influence any increase in equity exposure.

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Why largecaps and debt?

The preference for largecaps comes as market participants assess the gap between valuations and earnings visibility across market segments. Motilal Oswal Financial Services said the Nifty’s forward valuation had fallen to 17.5 times, 16% below its long-term average, after a correction from record highs. It expects Nifty earnings to grow 16% in FY27 and 14% in FY28, compared with 5% in FY26.

The brokerage said midcaps were trading 6% below their long-term average after the correction, while smallcaps remained at a 25% premium. That gap, it said, calls for a selective approach to stock picking.

Kotak Securities also said Indian equities had moved toward more reasonable valuations after a period of price and time correction. The brokerage said the Nifty 50 was trading at 18.7 times FY27 earnings and 16.5 times FY28 earnings. It forecast earnings growth of approximately 18% in FY27 and 13% in FY28.

Kotak recommended that investors gradually build a diversified portfolio of fundamentally strong businesses through staggered accumulation. Its Samvat 2083 ideas included APL Apollo Tubes, Eternal, Hindustan Aeronautics, Jubilant Ingrevia, Persistent Systems, Titan and Ujjivan Small Finance Bank.

Motilal Oswal’s Diwali picks included Kotak Mahindra Bank, Adani Ports, Titan, Eternal, BSE, SPR Auto Components, Shaily Engineering, Arvind, Unimech Aerospace and Symbiotec Pharmalab.

Don’t chase the best performing asset

S Naren of ICICI Prudential Mutual Fund said investors should be wary of buying an asset class simply because it has delivered strong returns. “Avoid anti asset allocation which means picking asset classes when they have done too well,” Naren said while speaking at the ET Wealth Expo in Mumbai.

He described buying an asset class after a sharp rally as “anti-asset allocation”. In his view, genuine asset allocation involves investing in segments that have corrected or fallen out of favour.

Naren cited the example of silver, which had delivered returns of around 216%. The rally made it difficult for investors to stay away from the metal, with many justifying their purchases through its industrial use, including in artificial intelligence, and concerns over supply shortages.

“Once silver gave a return of 216%, it was impossible for someone to say, ‘I won’t buy silver,’” Naren said.

He compared silver with a small cap stock because of its risk profile. Silver later declined around 27%, he said, while gold also peaked after delivering returns of approximately 116%, although its correction was less severe.

The experience, according to Naren, shows how investors often become comfortable buying an asset only after it has become popular and expensive.

Debt may be the overlooked allocation

Naren said Indian debt had remained an overlooked asset class despite outperforming the Nifty over the past three to five years.

The problem, he said, was that investors often consider debt boring compared with equities. But buying an unpopular asset class is an important part of asset allocation, he said.

He also cautioned investors against treating international equities as automatic diversification. Simply adding foreign stocks because they have performed well does not necessarily amount to genuine asset allocation.

Naren pointed to US equities as an example of an asset class that investors may be chasing after a strong run. For investors seeking international diversification, he said international debt could be considered instead, as it had underperformed over the past five years.

What role should gold play?

Gold still has a role in a five-year portfolio, but Naren cautioned against putting all the money into the metal.

He said gold’s long-term relative valuation may not revert to earlier levels to the same extent as in previous cycles because central bank behaviour has undergone a structural change after the freezing of Russian dollar reserves following the Russia-Ukraine war.

As long as such concerns persist, gold is likely to continue attracting attention, Naren said. However, he added that this did not justify an all-in allocation.

Ambit’s suggested 10% allocation would translate into ₹1 lakh for gold in a ₹10 lakh portfolio. The purpose would be to provide a hedge against geopolitical and macroeconomic uncertainty.

Indian equities still offer the core opportunity

Shahzad Madon, Managing Director and CEO at TCG AMC, said asset allocation must ultimately reflect an investor’s risk appetite, return expectations, age, income stability and existing wealth.

He said there was no one-size-fits-all allocation, but stressed the importance of diversification across asset classes.

“We believe Indian market valuations are more attractive compared to that of other major markets,” Madon said. He added that other markets were either at all-time highs or significantly influenced by a single theme such as artificial intelligence.

From a five-year perspective, Madon said Indian equities had the potential to deliver strong returns despite near-term headwinds. However, he said disciplined stock selection and a focus on fundamentally strong businesses with sustainable earnings growth would be critical to generating alpha.

That view is also reflected in the latest brokerage outlooks. Motilal Oswal identified BFSI and capital markets, manufacturing, global outsourcing and exports, and consumption and digital businesses as key themes for Samvat 2083.

The brokerage expects steady loan growth in banks, stronger participation in capital markets and multi-year growth in manufacturing segments such as healthcare devices, aerospace and auto components. It also sees opportunities in pharmaceutical ingredients, garments, port cargo, organised jewellery and quick commerce.

For investors deploying ₹10 lakh this Diwali, the common message is clear: build the portfolio gradually, keep largecaps and debt at the centre, use gold as a hedge, limit exposure to expensive midcaps and smallcaps, and avoid chasing assets solely because they have recently delivered spectacular returns.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)