25 Years of Indian Market History Reveals Optimal Asset Allocation During Corrections, From Ketan Parekh to Covid

The Quick Take

• Livemint analysis covering 25 years of Indian market history shows equity-only portfolios suffer deepest drawdowns during crises
• Adding debt investments substantially reduces losses during market corrections, from the Ketan Parekh scam through the Covid crash
• The historical record argues for a diversified equity-debt allocation as the optimal risk-adjusted strategy for Indian investors

Livemint's analysis of 25 years of Indian financial market history — spanning the Ketan Parekh manipulation scandal, the 2008 global financial crisis, and the Covid-19 crash — delivers a consistent finding: portfolios invested entirely in equities suffer significantly deeper drawdowns during market dislocations than those with meaningful debt allocations. This long-period analysis is particularly valuable in the Indian context, where retail investor equity adoption has accelerated dramatically since 2020 through SIP (systematic investment plan) platforms, often without equivalent attention to debt allocation.

The practical implication for the current moment is significant: with Indian equity valuations elevated following a multi-year bull market, the historical evidence argues that retail investors who built pure-equity SIP portfolios during the pandemic era of 2020-2022 are now sitting at maximum portfolio vulnerability to a correction. The Ketan Parekh episode of 1999-2001 saw equity-only portfolios lose 50-70% of value, while debt-balanced portfolios held demonstrably better — a lesson that applies to the current concentration of household savings in equity mutual funds.

Watch for SEBI's retail investor survey data on asset allocation across household financial savings — rising equity concentration without a corresponding debt buffer represents a systemic vulnerability that the regulator has been tracking. The macro variable is India's domestic inflation trajectory: if inflation remains elevated, real returns on debt instruments improve relative to equity, making balanced portfolios more attractive and potentially triggering a natural rebalancing that slows equity fund inflows.

Synthesized from 1 source.