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If August 12 is the starting point for somebody with a three-year time horizon, what should be the expectations from the market – double-digit returns, volatile returns or single-digit returns?
If we can look at the asset allocation, for a three-year outlook, I would call for a 50-30-20 largecap, midcap, smallcap equities. So, with that understanding in mind, I think double-digit returns are definitely on the table. Your asset allocation must be this way, because over the next 18 months, largecaps will continue to be the leader. Then midcaps and smallcaps will begin their journey. While the market is rising, earnings and ground-level economic recovery have not been as strong as the initial V-shaped bounce.
So this rally in smallcaps and midcaps is just a bounceback. Give it a little time to have a sustainable rally and for the economy to get into real V-shaped recovery. So, to me with an 18-month plus kind or horizon, you will definitely see much better returns from midcaps and smallcaps. So for a three-year outlook, I would say a 50-30-20 is the correct equity asset allocation to do. If you have a slightly longer time in mind, then I would argue for a five-year you could actually up the midcap and smallcap exposure by another 5 per cent each and reduce your largecap allocation. I think that is the right way to go about it.
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