Nifty and Sensex are trading at all-time high, what should an Investor and trader do? Should they exit the positions, or they continue to hold their positions.
Nifty’s price to book value of 3.3times represents an 18% premium to its historical average of 2.8 times. Analysts predict that Indian markets are in a Goldilocks Moment but believe certain sectors are overvalued and investors should be Cautious. Nifty correction is expected from many analysts and are willing to add further positions on a retracement of 5-8%.
Depending upon the requirement and perspective of Investor, things to be remembered before taking any financial decision:
REBALANCING YOUR PORTFOLIO:
It would be better to book some profits and exit some positions to be in safe side. Financially and fundamentally weak stocks need to be exited at right and all-time high point. Be careful with stocks that are trading at decade highs, especially PSU and Midcap cap stocks which are at all-time high. Risk appetite has to take care while taking fresh positions in these stocks.
Rebalancing of portfolio enables to book some profit and enter the stocks by value investing.
AVOID SPECULATIONS IN STOCK MARKET:
Investor should watch the market in reality rather than their own speculation and view regarding the stocks and their investments. Short term investors predict the market and take positions on their speculations, special care to be taken while taking such speculative positions in this all-time high range.
Investor should watch their stocks on regular basis and should be pro-active while taking decisions regarding their investments.
DON’T BE GREEDY BY MARKET HIGHS:
Nifty at 24,300pts and stocks at decade highs makes you to invest in stocks especially which are flying high and high, need to be very cautious and risk management has to be topmost priority. Midcap and Small cap stocks which are on upper circuits are very risky as once the selling starts there will be no buyers and will be in lower circuits.
STOCK MARKET ALWAYS MOVES UPSIDE:
Stock market and economy are directly connected to each other, as economy will be growing continuously as Stock market too. But need to remember that stock market will move higher but not the stocks.
From last 4years, Nifty has moved from 8500 to 24300pts which has almost tripled, but not all the stocks have tripled. Should be very cautious while selecting the stocks.
VALUE INVESTING TO BE DONE ON SECTORIAL BASIS:
Stock market always moves in sectorial basis, sectors will move cyclic. All the sectors will not move at one time, if IT sector at highs then consumer sector will be consolidating and Pharma sector will be at lows. In these scenarios, it will be better to exit IT Stocks and enter into Pharma Stocks.
HEDGE YOUR POSITIONS:
It is always better to Hedge your portfolio during market volatility. If the Market reverses also, your profit will be safeguarded.
On an Experimentally basis, 2% risk is required to hedge your portfolio to safeguard your investments.
CONCLUSION:
If Investor expects 30-40% returns for a period of 6months and if stock moves in a month, then better to exit the Stock.
Always remember, IF SOMETHING IS TOO GOOD THEN BE CAUTIOUS OR BETTER TO BE SAFE.