DBS Strategist Advocates Diversification Over Equity Reduction Amid Geopolitical Uncertainty
In a detailed interview with Mint, Joanne Goh, the Senior Investment Strategist at DBS Bank, provided a nuanced perspective on navigating the current volatile market landscape. While acknowledging the persistent geopolitical risks, she emphasized that investors should not resort to a broad reduction in equity exposure. Instead, Goh recommends a strategic approach focused on measured selectivity and diversification to manage portfolio volatility effectively.
Geopolitical Risks and Equity Strategy
Geopolitical risk remains a significant factor in today's investment environment, reflecting ongoing policy uncertainty across major economies, including the United States. Shifts in trade policies, tariffs, industrial strategies, and foreign relations can contribute to periods of market volatility and varied cross-border effects. However, Goh points out that such policy adjustments are not solely negative; they can also create selective opportunities in areas linked to domestic manufacturing, defence, energy security, and strategic supply chains.
At the same time, challenges may arise for more globally integrated sectors. In an environment where fiscal policy plays a larger role, domestically oriented sectors tend to receive support, particularly when government spending, policy direction, and balance-sheet support contribute meaningfully to growth. Through public capital expenditure, incentives, and targeted reforms, sectors with stronger domestic demand linkages and limited reliance on external trade may experience relatively better earnings visibility.
In the context of India, this dynamic is supportive of infrastructure, capital goods, manufacturing, banks, and selected consumption and healthcare segments. Government spending in these areas can help crowd in private investment and bolster demand. Against this backdrop, Goh asserts that there is no strong case for a broad reduction in equity exposure. Instead, investors should focus on measured selectivity and diversification.
Complementing Equities with Alternative Assets
To manage portfolio volatility amid geopolitical uncertainties, Goh suggests complementing equities with assets that have lower correlation. This includes alternatives such as:
- Private equity
- Private credit
- Infrastructure investments
- Real assets like gold
- Certain hedge fund strategies
Safe-haven assets can serve a tactical purpose in this strategy, while a diversified portfolio remains a balanced response to an evolving geopolitical environment. This approach helps investors capture potential upside while mitigating risks associated with market fluctuations.
Identifying Quality Investments in a Risk-On Environment
In a risk-on environment, Goh emphasizes the importance of focusing on companies that deliver strong revenue and earnings growth underpinned by long-term secular trends. It is crucial to remain disciplined by avoiding loss-making or speculative businesses. Balance-sheet strength and consistent cash flow generation are also vital, as they provide resilience should market sentiment reverse.
Rather than relying solely on individual security selection, Goh advocates for a portfolio approach. She highlights DBS Bank's CIO Barbell Strategy, which allows investors to capture upside from long-term, irreversible growth trends while generating stable income. On the growth side, this involves investing in companies aligned with secular trends such as the ageing global population and artificial intelligence adoption. On the income side, it includes high-quality bonds and dividend-yielding equities, such as Real Estate Investment Trusts (REITs).
These assets provide a regular stream of cash flow, helping to stabilize the portfolio and offering resilience during periods of market volatility. Additionally, risk diversifiers like gold can reduce portfolio volatility and drawdowns, further enhancing overall stability.
Sectoral Outlook for the Next One to Two Years
Goh continues to monitor India's IT sector for selective or quality-led exposure. A more attractive entry point could emerge as global IT spending trends stabilize, AI monetization becomes clearer, and valuation expectations adjust to evolving growth assumptions. In the near term, the sector is navigating a combination of cyclical factors linked to global IT spending patterns and structural changes associated with AI adoption.
Client preferences are gradually shifting toward productivity gains and outcome-based pricing, which may influence near-term revenue and margin dynamics. Over time, AI is likely to be incremental rather than disruptive for leading Indian IT services firms. Larger players with established client relationships, strong balance sheets, and investments in cloud, data, cybersecurity, and AI platforms appear well-positioned to adapt business models toward greater productivity and platform-led offerings, potentially supporting margin stability over the medium term.
India's banking sector remains a key component of the equity market and offers relatively strong structural characteristics. Banks are benefiting from an improved credit environment, with asset quality at healthy levels, manageable credit costs, and comfortable capital adequacy. Balance sheets, particularly among large private-sector banks, are positioned to support loan growth across retail, MSMEs, infrastructure, and manufacturing, consistent with India's investment-led growth trajectory.
Overall, Indian banks support a core allocation within an India equity strategy, offering a combination of structural growth, improving balance-sheet quality, and relatively lower sensitivity to global economic cycles. This complements exposure to infrastructure and manufacturing sectors.
Portfolio Positioning for Infrastructure and Manufacturing Focus
If the budget focuses on infrastructure and manufacturing, investors should position their portfolios to capitalize on these sectors. India's infrastructure and manufacturing sectors merit continued attention, particularly in the prevailing global economic and policy context. From a structural perspective, India is one of several beneficiaries of ongoing global supply-chain diversification.
Government-led initiatives such as Make in India, production-linked incentives (PLIs), and sustained public capital expenditure are supporting capacity build-out across roads, rail, ports, power, defence, and digital infrastructure. This provides a multi-year growth opportunity for infrastructure developers, capital goods, cement, and engineering players, supported by domestic demand and moderate exposure to global trade cycles.
Manufacturing is also seeing steady progress as India gradually moves up the value chain, from basic assembly to electronics, autos, renewables, and defence manufacturing. Rising foreign direct investment, incremental improvements in ease of doing business, and a large domestic market support scale and margin expansion over time. These sectors are generally aligned with longer-term global supply-chain and strategic realignment trends and tend to have relatively lower sensitivity to short-term developed-market growth fluctuations.
Participating in the AI Theme Mindfully
Artificial intelligence continues to dominate investment narratives, but investors must remain mindful of concentration and valuation risks. One way to participate in the AI theme without becoming overly concentrated is to look beyond the technology sector. AI's impact is far-reaching and extends well outside the technology space, reshaping business models across the broader economy.
In Goh's view, a better risk-adjusted way to gain exposure to this AI wave is to look for adapters that embrace AI to drive efficiency gains and higher profitability. On this basis, she believes large-cap companies are better positioned to scale AI adoption. These companies typically have more capital and data advantage to deploy AI at scale. Hence, this will translate into a widening AI-related productivity divergence between large and small businesses.
By focusing on diversified strategies and selective investments, investors can navigate the complexities of today's market while positioning for long-term growth opportunities in sectors like infrastructure, banking, and AI-driven enterprises.
