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As India's market-cap hits $3 trillion, is it time to book profits? This is what experts have to say

Structural uptrend is intact, said experts. Some, however, advised the risk averse to book profits

May 26, 2021 / 10:34 AM IST

India’s market-capitalisation – the value of all the listed companies in the country – crossed $3 trillion on Monday, making it the eight largest market in the world using this yardstick.

This milestone came amidst uncertainty owing to the pandemic, but was made possible by a strong recovery in earnings, stable global cues, and consistent buying by domestic and foreign institutional investors.

Where are the markets headed now and what should investors do?

For the most part, they believe that the structural uptrend in the market is intact but some experts also said that investors with low risk appetite should book profits and buy on dips.

“Globally all leading markets are touching new highs due to excessive liquidity, however, this may be taken as an opportunity to book short-term trading profits, as at this level India's market cap is touching almost 100 percent of India's GDP, which last time we saw in 2007,” Amit Jain, Chief Strategist - Global Asset Class, Ashika Group said.

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“With Nifty at 15200, we can say that the market has already discounted a lot of good news. From current levels, we may see some time correction, if not price correction. In my personal view, it is time to take a pause for new investments, and investors with low-risk appetite may book profit in existing portfolios, depending on their sectors & stock portfolio weightages,” he said.

 

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The rally in Indian stocks is in sync with global sentiments. It is quite broad-based too with the midcap and smallcap stocks doing quite well. The S&P BSE Midcap index rose 20 percent while the S&P BSE Smallcap index rallied 28 percent so far in 2021 compared with the 6 percent rise seen in the S&P BSE Sensex in the same period.

“We are now seeing an extension of the rally to broader markets where the midcaps and smallcaps are performing well as the risk appetite is chasing the value stocks,” Divam Sharma, Co-founder at Green Portfolio Services told Moneycontrol.

“The strategy for the investors should be to stay invested in high-quality stocks, book profits in stocks that have run up and are trading at higher valuations to the historical averages, switch to stocks where the business has strong fundamentals and the valuations are still reasonable,” he said.

Structural uptrend intact

The consensus seems to be that the rise in markets will continue as the economy opens up after the second wave and the pace of vaccination accelerates.

Morgan Stanley, in a report released earlier in May, highlighted that it sees Sensex hitting 55,000 by December-end in its base case scenario. It has predicted Sensex earnings to rise by 30 percent in FY22 and India to outperform other emerging markets.

Others shared this opinion.

“I believe the market might appreciate 12-15 percent (Sensex returns) during the rest of the year,” Gaurav Garg, Head of Research at CapitalVia Global Research said.

“Investors should try to pick stocks from broader indices as quarterly results are looking promising compared to large caps. In my opinion, sector, and stock-specific action might be there, and investors should smartly switch among sectors,” he said.

Doubling down on commodities

Garg further added that commodity, metals, pharma, technology stocks might be in flavor and investors need to keenly watch them. Indeed, high beta stocks might do well in the current scenario.

In the high beta space, commodity stocks could be one of the top bets. For a conservative investor, it will be risky to invest in cyclical industry in such unprecedented times, but for someone who is not risk-averse – commodity plays are a good bet in the short term amid rise in commodity prices globally.

“There is more structural upside in the metal space. Investors should follow ‘add-on dip’ strategy and not park more than 10 percent of their total portfolio fund in commodities,” said Ankit Pareek, Research Analyst at Choice Broking said.

“We like Tata Steel and NMDC (Beta >1) are likely to report a strong operational performance with the ongoing commodity super-cycle. A further surge in metal commodity prices will benefit integrated steel players and ore miners in India,” he said.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Kshitij Anand is the Editor Markets at Moneycontrol.

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