In the last five years, Sensex has doubled to 80000 on the back of buying from retail investors against the selling from foreign players. Retail investors through direct and indirect investments have been buying equities at a faster pace now.
This famous saying echoes for this present moment “Far more money has been lost by investors preparing for corrections, than has been lost in corrections themselves”.
Follow these rules:
1. Don’t let your SIP in mutual funds stop. Go for a mutual fund with a larger cap bias while still allocating not more than 20-30% in small and mid-cap companies.
2. Do not sell in panic if there is a short-term correction. Sell only to meet any near-term goals.
3. Longer time frames lower the odds of negative returns. The longer the time frame, the higher the odds of better returns
4. Invest in valued companies with good governance and efficient run management.
5. Focus on large caps especially banking and financial services, Pharma, and IT sector stocks for now.
6. Be cautious on small and mid-cap segments; there may be a correction in these companies.
7. Asset Rebalancing is required now to maintain some level of diversification and asset allocation.
8. Expect debt funds to move up with yields moving down and bond prices climbing. (look at corporate and medium-term bonds
Investors also need to be cautious in the near term due to expensive valuations. This rally may continue but there will be short-term fluctuations in the near term which can really shake the new investors who have joined just after the Covid event.
Therefore, investing consistently irrespective of new highs must be the actual principle of retail investors’ investment philosophy.
If you are hesitant to invest large lump sum money in Equity, stagger entry over six months. All Time Highs are a natural part of any growing asset class and not something to be feared.
Despite several intermittent crises, Indian equities have gone up over the long run mirroring earnings growth. Every crisis in the past has been followed by a recovery and further upside.
Large caps are still reasonably valued while small and midcaps are expensive / valued very high. Not the best time when small /mid-cap has given such high returns. Small-cap funds are highly overpriced now. Small & Midcaps need to undergo price or time correction, or both to once again become attractive for investors.
Robins Joseph, SEBI Regd Investment Adviser, Certified Financial Planner. Founder of MyGuide2Wealth (www.myguide2wealth.com) based in Noida, specializing in wealth, investment, retirement & investment planning with the clear aim of spreading financial literacy and advocating India’s strong equity story.
