Strategies For Investors: How Should You Navigate The Current Market Highs?

Record-High Market: Since the beginning of 2024, the combined Mcap of India-listed firms surged by 24.5 per cent to $5.23 trillion, outperforming other major markets

India's stock market value is set to more than double to $10 trillion by 2030.

Source : ABPLIVE_AI

By Priti Goel

The S&P BSE Sensex jumped from 70,000 to 80,000, the fastest rally of 10,000 points in 139 sessions or less than 7 months. With a historical CAGR of 16 per cent, Sensex can potentially hit 1,00,000-mark by December 2025. Year to date, Sensex has gained 11 per cent. Similarly, Nifty hit a new high by crossing the 24,000-level for the first time on June 27, 2024, and reached its peak of 24,401 on July 4, 2024.

While rapid rally has been broadly driven by strong macroeconomic fundamentals, continuation of pro-growth government policies, expectations of US Fed rate cuts ahead, return of foreign investors to Indian markets boosting liquidity and sentiment, good monsoon this year and outperformance of small and mid-sized companies to its large peers accounting for about 40 per cent of the total valuation, a potential correction soon cannot be ruled out for appropriate re-balancing.

India's equity market now ranks alongside the US, China, Japan, and Hong Kong in terms of market capitalisation. Since the beginning of 2024, the combined Mcap of India-listed companies surged by 24.5 per cent to $5.23 trillion, outperforming other major markets. Indian market has added over $1 trillion to its market capitalisation in the past 6 months.

India's stock market value is set to more than double to $10 trillion by 2030. In terms of GDP, it is projected that India’s economy will grow to $5 trillion by 2025 and further to $8.4 trillion by 2030. This translates to an average annual real growth rate of 8 per cent, positioning India as third-largest economy by 2026, potentially trailing only China and the US.

The market is continuing its upward trajectory and will continue to deliver 8-10 per cent dollar returns over the next 5-7 years. Accordingly, current Sensex and Nifty levels appear reasonable (not very high for future even if they appear record levels as compared to past) and in line with projections of both India GDP and stock market valuations ahead.

Let's look at some investment strategies to consider at current levels of markets and where it can potentially reach ahead.

1) Review your asset allocation to ensure investments are aligned with your risk tolerance and goals. If stock allocation or equity allocation has increased due to market gains, consider re-balancing or revisiting your goals for current times, as appropriate. Stay committed to your long-term financial strategy.

2) No harm in booking profits to bring down your asset allocation from equity due to market gains. Re-allocate to other stocks or other assets. Stocks that have run up ahead of their fundamentals and should be considered for partial or full exit and this will help insulate the portfolio from any sudden shock due to volatile market movements. Diversify your portfolio across asset classes and sectors.

3) Stock markets are cyclical, and growth is often followed by corrections. Keep a long-term perspective. Avoid impulsive decisions. Market corrections are a normal part of investing. While they can be unsettling, they present opportunities to buy stocks at discounted prices. Consider keeping some idle cash in advance to invest at lower price during corrections.

4) Mid- and Smallcap stocks in India continue to make new highs as large cap struggles. The BSE Midcap index is up 17.2 per cent since the start of the current calendar year and up 70.5 per cent since end of December 2022. Similarly, the BSE small cap index is up 12.4 per cent per cent year to date and is up 65.8 per cent since end of calendar 2022. In comparison, large cap-oriented BSE Sensex is up just 2.7 per cent year to date and has gained 22 per cent since the end of 2022. This is unprecedented as companies in all segments operate in the same way and are equally affected by changes in the country’s macroeconomics. Though, historical data suggests that over the long term, they average out and there is no big difference in the returns delivered by largecap, mid and smallcap stocks. If you further add dividend yields, the Sensex companies' dividend yield at 1.25 per cent is 36 per cent higher than midcap index dividend yield (0.92 per cent) and 92 per cent higher than small cap dividend yield (0.65 per cent). The market may be ripe for the next cycle of sector rotation that may now benefit large cap stocks.

Invest in high-quality large cap stocks that can shift from the underperformance of last one year by a big margin.

• Invest in securities that are less volatile called risk management investing. It also means accepting the risk and holding on to it without taking any specific action to mitigate. It lets you implement measures to minimise the impact of potential losses by setting stop loss orders.
• Buying securities that appear underpriced but have strong fundamentals and growth potential, called value investing. Investors tend to uncover the intrinsic value and develop patience to buy the stock at a price that is lower than its intrinsic value.
• Invest in rapidly expanding industries where new technologies and services are being developed, called growth investing. It can be attractive to many investors as buying stocks in emerging companies can provide impressive returns (the risk of being untried before remains though).
• Invest in high dividend yielding stocks. Dividend investing focusses on stocks that pay out dividends. Investors benefit twofold. One from price appreciation due to market rally and second by dividend distribution.
• One can go for buy-and-hold strategy, also called position trading or passive investment, where investment (example: Index Funds, ETFs) are bought and held for extended periods. The longer your money remains invested, more time it must weather market fluctuations and potentially grow. These passive investments are also cost effective and cheaper to buy & include in your portfolio. These index funds and ETFs can be for small, mid and large cap categories to benefit from the market rally across segments.
• Thematic investing identifies macroeconomic, geopolitical and technological megatrends with a potential to reshape industries. It focusses on companies likely to benefit from ongoing trends (example: ESG, reduction in carbon footprint)

5) Start your financial journey with a SEBI registered Investment Advisor, if you don’t have one. Investment advisors are astute and steer you towards long term wealth creation. They help you construct clear and SMART (specific, measurable, achievable, realistic and time bound) financial goals. They handhold you in taking informed investment decisions, guide you in your execution journey and manage your investment portfolios including monitoring and measuring performance from time to time. They help you keep the emotional quotient out when markets are volatile, help you in strategic asset allocation and lets you make sound and timely decisions in order to avoid any impulsive decisions based on short-term market movements.

6) Stay the course. Historically, markets tend to rise over time. Don’t panic and stay invested.

The author is the founder & CEO of Prisha Wealth Management Private Limited, a SEBI Registered Investment Adviser. 

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