The asset allocation of funds needs to be key focus towards equities, debt and gold, said Mahesh Patil, co-chief investment officer at Aditya Birla Sun Life AMC in an interview to CNBCTV18. “The right asset allocation is a key for investors to tide over this kind of a risk aversion which is there in the market and that should help,” he added.

“The risk-reward for equities at this point of time might not look very good from near-term perspective but the long-term outlook for equities still remains good, looking at how the domestic economy is likely to shape up over the next 3-5 years,” he said.

Talking about specific sectors, Patil said, “The banking sector should continue to track the broader economy and should be fairly steady and to play the broader economy that has been the preferred route what investors have chosen.”

“However, earnings growth in other sectors also likely to improve going forward,” said Patil.

Speaking about pharma fund, he said, “Domestic has been fairly steady and we see good long-term growth drivers in terms of demographics, in terms of change in mix from acute to chronic; chronic is supposed to be much more profitable and growing faster. Therefore, change in mix will drive margins going forward.”

“Increased focus of the government on the health insurance will ensure that the domestic pharma industry which is still very low in terms of per capita will continue to see strong growth for the next decade or so,” added Patil.

On auto sector front, he said, “I do not think we should see a structural slowdown in the auto sector. It is probably still cyclical. The numbers could look weak for next 6 months”

“Second half could look stronger because of pre-buying. On balance, the sector after correction looks fairly interesting if we have good monsoon, rural demand picks up and then it’s going to be a good time to look at some of the leading auto names,” Patil further added.

Key highlights:

- Liquidity crisis, high promoter pledge has plagued sentiment in Indian markets

- News flow on the domestic front has been weak

- Domestic growth scare & global trade tussle are headwinds for equity markets

- The frontline index is supported by a few large-cap stocks

- Risk reward doesn’t look very positive in the near term for India

- Asset allocation of funds need to be key focus towards equities, debt, gold

- Midcap could continue to have challenges in the near terms

- Midcap valuations looking fairly reasonable post recent correction

- Domestic pharma has been steady & see long-term growth drivers