NEW DELHI: With the BSE Sensex adding the 5,000 points in just 28 sessions to breach the 60,000-mark for the first time in its 31-year long journey and the bulls seemingly in complete control of the market, the desire to invest in equity and make quick money escalated like never before.
The exuberance in the market though should make investors – existing or prospective – to pause for a moment and seek answers to some of the fundamental questions. Should new investors, who have been watching from the fringes this surge should join the party or should existing investors book profit at current level and then join the back when there is a price correction?
In order not to get carried away by the enthusiasm in the market on Sensex reaching the milestone of 60,000, you must listen to what experts have to say, and follow the well-laid out financial paths to continue making money.
But before you start, here is a caveat. “Market valuations are rich. Retail investors are driving the market aided by the humongous liquidity available in the financial system. However, market cannot be a one-way street. At high valuations markets are vulnerable to sharp corrections,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
So, what should be the investor’s strategy at a time when valuations are at an all-time high and yet the exuberance in markets refuses to die down? VK Vijaykumar has a few words of wisdom for retail investors — Investors’ response to the market should be based on their financial goals.
New investors exercise restrains
Itching to take advantage of the equity market on steroid? You must exercise caution if you are investing for the first time. According to Gaurav Garg, Head of Research, CapitalVia Global Research, new investors must be careful as of now and they must look for reasonably-valued stocks or else wait for the correction in the market in order to make positions from lower levels.
Vijayakumar said that new investors should not fall into the trap of chasing low-priced small caps and should have minimum time-horizon of four years. New investors should also keep this in mind that they can participate in the equity market by also investing in equity mutual funds instead of taking a direct plunge into equities.
Mutual funds with their team of fund managers, researchers and in-house fund management practices are better placed to invest wisely than investors themselves taking bets on stocks. “Invest systematically in high-quality stocks. If the investor doesn’t have expertise and time to make good investment, invest through mutual funds, preferably through the SIP route. Don’t trade; invest,” says Vijaykumar of Geojit Financial Services.
Strategy for existing investors
Existing investors should act as per their financial goals and should not take decisions based on Sensex or Nifty levels. “If an investor has been investing in the market for the last several years with a clear goal of raising the money for down payment for buying a house and if their investment has now grown to enable them to realise that goal, they can sell their investment and realise their dream goal. On the other hand, if an investor has been investing in the market with the long-term objective of participating in the wealth creation through the stock market, they should remain invested and continue to invest systematically,” Vijayakumar of Geojit Financial services told TNIE.
Some experts advise existing investors to book profits at current level if one has no immediate plans to increase fund allocation. “An already-invested investor with no plans to add more may book partial profit as of now (if required), do some re-balancing and may leave the rest invested from medium to long term,” said Gaurav Garg of CapitalVia Global Research. Investors can also look at the upcoming earning session as an opportunity to invest in stocks.
Vinit Bolinjkar, Head of Research, Ventura Securities, believes the upcoming earnings season is expected to provide good investment opportunities to investors. “Sectors that are expected to perform better in FY22 are Real Estate, Housing Finance Companies (HFCs) and Cement,” he says.
Correction on the anvil?
According to the data available, all previous bull markets in India - 1992-92, 1994, 1998-2000, 2003-07 - had big corrections of 5%, 10%, even 20%. Analysts believe the same is likely to happen with the current run as valuations are hard to justify. However, they are also confident that market will bounce back from a fall.
Bolinjkar says, “We believe that the current market valuations are stretched. At 60,000, Sensex is trading at CY22 P/E 22X (EPS of Rs 2,711) which is higher than the average one year forwarded P/E of 19X. So, the current valuations are on the higher side and have already priced in the positives of future economic recovery. We believe that the upside from the current level is limited and the Sensex is expected to be range bound. We would recommend to invest only in multi-year growth stories and avoid short-term profits.”
