#Ep 5: The Consistent Compounders Show :Stay tuned to catch Saurabh Mukherjea in conversation with Sohini Andani, Fund Manager, SBI Mutual Fund.

Sensex at 1,00,000 a real possibility, what should be your investment strategy?

One should not get carried away with index levels. It is important to stick to a disciplined approach of buying and holding on to great businesses and eliminate undeserving names from the portfolio, say experts.

January 22, 2021 / 11:41 AM IST
Representative image

Representative image


Sensex at 50,000 lit up screens on January 21 and the way the economy is progressing, the index can hit 1,00,000 by 2025, say some experts.

The record run, however, didn’t really let investors in. After the breakdown in March 2020, markets moved only in one direction—the upside—leaving little room for investors to take advantage of the dip.

The journey from 50,000 to 1,00,000 will not be smooth and depend on variables such as economic recovery, earnings revival, foreign and domestic flows, vaccine deployment and structural reforms.

Also read: Sensex@50K! Don’t fear the dip, have faith in Indian story: Experts

The vaccine rollout in several countries, including India, is a positive sign and will expedite the recovery, which will be V-shaped after all. And, the ''V'' stands for the vaccine, said an article on the 'state of the economy in the Reserve Bank of India's January bulletin.

Close

“The Sensex has hit 50,000 on the strength of faster than anticipated recovery in economic activity, FPI flows into our market and heightened hope from the upcoming Budget, promised to be ‘like never before’ by the finance minister,” Amar Ambani, Senior President & Institutional Research Head, Yes Securities, said.

“We’ve entered a super-cycle for Indian equities as we had seen in the year 2003. We see a high possibility of decisive reforms from the government, accelerated earnings growth, and a continued liquidity flow chasing growth in a period of a weakening US dollar."

Also read: Sensex above 50,000! Is the market in a bubble that is about to pop?

Ambani expects the Sensex to surpass the 1,00,000 by 2025. A fresh upcycle has resumed for small and midcaps as well, after consolidation in 2018, 2019 and the better part of 2020.

The economy contracted by 23.9 percent in the first quarter and 7.5 percent in the second quarter on account of the COVID-19 pandemic and is estimated to shrink by a record 7.7 percent during 2020-21

But, micro and macro numbers are suggesting that recovery is on its way. The rally, which we have seen in the past year, has been largely driven by liquidity, thanks to the loose monetary policies adopted by central bankers to support growth.

The liquidity taps are unlikely to be turned off anytime soon and the rally will continue to get support but long-term investors should build a portfolio that can withstand any meaningful dip.

Invest but not because of FOMO (fear of missing out) or TINA (there is no alternative) but because you have faith and trust in the company you are investing in.

“The Sensex touching 50k is particularly remarkable as we saw extreme emotions of fear and greed in the last 10 months. While March 2020 was a month where investors were worried and were thinking of redemptions or at least to save whatever is left in the kitty, a feeling of missing out and having missed out ruled for the last few months,” Devang Mehta, Head Equity Advisory, Centrum Broking said.

Record foreign flows supported by global central banks, the relative attractiveness of equities against other asset classes, improvement in macro-economic indicators and high-frequency data and coronavirus vaccine acted as catalysts to the upbeat sentiment, he said.

Mehta warned against getting carried away and said it was important to follow a disciplined approach of buying and holding on to great businesses and eliminating undeserving names in the portfolio.

When to sell

The big question that investors usually ask is when to sell or book profit, especially at a time when most stocks in the portfolio have rallied in double digits.

Investors struggle to find the “right time” to sell stocks. It is easier to be objective while buying but when it is time to sell, emotions can cloud judgement.

To make money in stocks, you must protect the money you have. “Live to invest another day by following this simple rule: always sell a stock it if falls 7-8 percent below what you paid for it. This basic principle helps you cap your potential downside,” Mayuresh Joshi, Head-Equity Research, William O'Neil India, said.

“It is the simplest way to make sure you never let a small loss become a big one. The 7-8 percent sell rule is based on an ongoing study covering over 100 years of stock market history. Even the best stocks will sometimes breakout and then drop slightly below their ideal buy-point,” he said.

When they do, they typically do not fall more than 8 percent below it, said Joshi. If the stock does decline more than 8 percent, it usually means something is wrong with your chosen entry point, the company, its industry, the general market, or all of the above.

“To grow your portfolio substantially, take most gains in the 20-25 percent range. Though contrary to human nature, the best way to sell a stock is while it's on the way up, still advancing, and looking strong to everyone,” Joshi said.

After a significant advance of 20 percent to 25 percent, sell into strength. When you sell like this, you won't be caught in a crushing 20-40 percent correction that can hit market leaders.

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.

stay updated

Get Daily News on your Browser
Sections