Says financial planner Gaurav Mashruwala: “In fact, you can use this opportunity to rid your portfolio of stocks that do not add value. If you are stuck in stocks and mutual funds that are not fundamentally strong and have been looking for the right time to exit, this is the time.”
His views are echoed by Alok Ranjan, head — PMS, Way2Wealth who says investors could consider booking profits in mid-cap and small-cap stocks that have run up without fundamentals while holding on to large-cap stocks and mutual funds. “One could be in cash of 15%, and any sharp correction could be used to buy into fundamentally strong companies. With results season around the corner, investors should exit fundamentally weak companies,” is what he is advising investors.
Ideally, for retail investors with a long-term view, sticking to a fixed asset allocation — devised after taking into account their goals and risk profile — could be the best approach to adopt. “If our clients are overweight in equities due to the market rally at this point of time, they may reduce the exposure in equities in accordance with their asset allocation,” according to Pankaj Narain, head — private clients, banking and investments at Deutsche Bank India.
Mr Mashruwalla says, if an investor has decided on an asset allocation ratio of 60:40 (equity: debt), and the equity component has swelled to 75% due to the market surge, they could look at liquidating part of their equity portfolio. However, if the deviation is merely 5-10%, there may not be any need to rebalance the portfolio.
On the other hand, if investors are underweight on equities, financial planners say they could invest in the market in a phased manner. And for those investing in mutual funds, opting for the SIP route is the ideal method to adopt, they opine. “The current rally in market is due to excess liquidity, though it is supplemented by the strong economic fundamentals. Investors should be cautious hereafter, and with every 100 point rise in Nifty, there should be gradual profit booking,” suggests RL Narayanan, vice-president, equity institutional sales, Bonanza Portfolio.
Also, keeping an eye on the evolving scenario and taking decisions accordingly could be the key to building a healthy portfolio. “At current levels, valuations definitely are looking stretched, though liquidity can drive it further up. Investors clearly need to take 15-20% off the table. The biggest risk is rising inflation, due to which at some point in time, RBI will be forced to raise interest rates. If that happens, markets will take a closer look at valuations and correct,” cautions AV Srikanth, executive director of Anand Rathi Private Wealth Management.
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