Indian portfolio strategists need to be nimble in playing what we think could be a prolonged ‘snakes and ladders’ game, between lower growth, high inflation, uncertain politics compared with modest expectations, reasonable valuations and the possibility of some,even if partial, policy measures.

This quandary makes trend investing difficult and forces constant portfolio rebalancing, in our view. We expect Nifty50 to range between 5,050 and 6,100 for the next 12 months. We suggest investors stay low beta but add some spice with names that could benefit from policy initiatives.

Gloom has deepened around India’s high fiscal deficit, stubborn inflation, and faltering growth amid political wrangling at the centre.

After a phase of 8.9 per cent annualised GDP growth between FY05 and FY10, we expect India’s GDP to grow 6-6.5 per cent in FY2013. Even though well known, these worries have lost none of their potency and drive our underweight stance on Indian financials.

Valuations are undemanding at 12 times FY13E and big earnings and cuts are done for now, we think. Political roadblocks to big reforms need not stop small policy measures.

Resource allocation, infra spending, tweaks in subsidies and easing of some foreign investment concerns are easy steps the government could take, and we expect equities to respond favourably.

Telecoms, metals and mining and infrastructure sectors are likely beneficiaries. Earnings visibility and currency impact also lead us to be overweight healthcare, IT services and consumer staples.

The Indian market seems to be in a consolidation phase and playing volatility could be important for outperformance. We believe that Nifty could be range-bound between its average P/E and 1sd below average, which yields a 5,050-6,100 expected range.

Our portfolio for now has a defensive bias, with some beta added to take advantage of possible policy measures. We expect to revisit our portfolio stance regularly, in sync with our view that India will remain a game of ‘snakes and ladders’ for the foreseeable future.