Equity vs debt: What's your pick?

livemint.com:

As India’s benchmark equity indices flirt with record highs, investors are turning cautious about valuations becoming too lofty. They have a deluge of other reasons as well to be wary: the outcome of the ongoing general election, geopolitical tensions, soaring crude oil prices, mounting inflation, and delayed rate cuts in the US. Little wonder then that several investors are shifting their focus to the debt market.

Equities have been in a bull phase for over four years now, with the Nifty 50 index skyrocketing 198% from its all-time low of 7,610.25 points on 23 March, 2020. The market has been riding high on better earnings prospects, public capital expenditure, a pick-up in private capex as well, demand revival, lower interest rates, and a likelihood of policy continuity if the BJP-led National Democratic Alliance returns to power at the Centre. On 30 April, the Nifty 50 registered a fresh all-time high of 22,783.35 points.

But for investors, the unrelenting bull run could mean a time for pause. “Despite India’s robust macroeconomic indicators, the current market valuations are not cheap, as they continue to trade above long-term averages," said S. Naren, executive director and chief investment officer at ICICI Prudential AMC.

The Nifty 50 is currently trading at a price-to-earnings multiple of 19.7 times on a one-year forward basis, compared with its 15-year average of 18.7 times, show Bloomberg data. Given the elevated valuations, investors should exercise caution and be cognizant of potential risks, Naren said. For investors contemplating increasing their allocation to equities, he believes large-cap stocks to be better placed than midcap and smallcaps due to their comparatively attractive valuations and better