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BofA Securities expects Nifty to fall 10 percent by December, here is what you should do

Nifty Small Cap 250 TRI index has already lost 10 percent from its peak of 11,319 it hit on August 2. Some stocks lost more than 20 percent in no time

August 26, 2021 / 11:32 AM IST

Alarm bells are ringing. The Nifty50 has gained 50 percent in last year and brokerages like BofA Securities are worried. In an August 20 report, it said that equity markets will correct and the Nifty50 will slip to 15,000 by December—a straight 10 percent fall from the current levels.

But that does not mean you sell your equities, right away.

Shift to large-caps?

The report says that the great run of small-cap stocks is likely to end soon. Increased retail participation and muted IPO listings are also causing worry. Since the market hit rock bottom in March 2020 as Covid-19 was declared a pandemic, the smallcap index has gone up by 184 percent.

That’s not all. The report recommends more allocations to defensives and cutting exposure to materials. If you have been investing in sectoral or thematic funds, you would have certain expectations or views about the sector. If they have already played out then you can consider booking profit as well.

Close

If you are fearful about a further slowdown due to the Delta variant of the coronavirus, a poor monsoon and possible rise in interest rates and inflation, then you can consider going slow on cyclical-focused funds.

“If you are invested more in funds that are cyclical in nature, then it may be time to rebalance after consulting your adviser,” says Ravi Kumar TV, founder of Gaining Ground Investment Services.

“Investment in a diversified fund will have an exposure to defensive sectors as well. So, instead of predicting market cycles and within that, sector cycles, better to have an exposure to a diversified fund,” says Amol Joshi, Founder of Plan Rupee Investment Services.

You may also want to trim your allocation to small-cap funds if it has gone above the desired threshold.

Do not panic sell

The Nifty Small Cap 250 TRI index has already lost 10 percent from its peak of 11,319 on August 2. Some stocks lost more than 20 percent in no time.

However, do not rush to sell all your stock. “If you are a short-term trader then such predictions should bother you. But if you are investing with a long-term goal such as funding your retirement then you should not be worried,” says Vinayak Kulkarni, a Mumbai-based distributor of mutual funds.

Financial advisers suggest investing money in specific assets based on what you want to save up for. It if’s a financial goal you’re saving up for, market corrections should not bother you.

“In extreme market conditions, emotions can cloud our judgements. Overconfidence that the markets will fall has cost many investors a lot,” says Ravi Kumar.

Instead, take a look at your asset allocation. If there is too much equity in your portfolio and too little debt, it’s time to move some money to debt.

“Having an asset allocation that has too much of just one asset class, is bad for your money box,” says Joshi.

But what if there is a correction?

Corrections are inevitable. You can at the most argue on the quantum and time of correction. You should use corrections to your advantage if you have some spare cash over and above your emergency funds and cash kept aside for other short-term goals.

If you have missed the investment opportunity over the last year because you stayed out of the market fearing a correction, then use the current opportunity.

“Do not jump in with all your money in one go instead opt for systematic transfer plans or systematic investment plans into diversified equity funds,” says Kulkarni.
Nikhil Walavalkar
first published: Aug 25, 2021 10:06 am

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