Sensex scales record high: How to make the most of your investments

Though a lower PE indicates cheaper equities, investors should not forget that a year ago it captured the past 12 months that were impacted by the pandemic. Today, the pandemic is probably behind us and there are hopes of better times ahead.

However, the macroeconomic scenario has changed completely. On the one hand, the economy is expected to grow at healthy pace and corporate earnings are expected to follow. On the other hand, interest rates are on the rise.

The Reserve Bank of India has increased the repo rate by 190 basis points since May. Rising interest rates the world over have pulled down equity valuations, especially in the technology space. Developed nations including the US face an economic slowdown and are trying to cope with expectations of a recession.

The dollar index has been rising since the beginning of CY2021 and hit a high of 114 in September 2022. However, as it corrects to 105, risky assets including Indian equities should benefit. If the pace and quantum of interest rate hikes are reduced, then equities may again start rising after this period of consolidation. Falling crude oil prices are also raising hopes for Indian equities.

Though many investors are guessing the next move in the Sensex and the Nifty 50, experts are busy watching stocks.

“The current market valuation is somewhat expensive as compared to historical averages,” said Rajeev Thakkar, chief investment officer and director at PPFAS Mutual Fund. “However, if we break down the valuations of individual sectors and companies, there are segments which are expensive and there are segments which are attractively valued. The future direction will be driven by these individual segments performing differently and the overall index may not give very high returns.”

Shyam Sekhar, chief ideator at ithought Advisory, said, “The Indian markets may see some stock-specific movements, wherein some overvalued stocks see a decrease in valuations and some undervalued sectors get increased investor attention.”

Put simply, it is going to be stock-specific moves, going ahead.

Buy, sell or review?

Instead of looking to buy or sell, you may choose to review your portfolio. Check if you are on track to achieve your financial goals.

An individual scheme’s performance needs to be checked against their peers and benchmarks. If a scheme has been earmarked for a financial goal that is due in the near future and the corpus built is close to target, then you may want to take the money off the table.

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For example, let’s say you started with a systematic investment plan of Rs 5,000 per month on November 1, 2017, to fund your car’s purchase. Your aim was to buy a car of Rs 5 lakh in November 2023. So far, you would have invested Rs 3 lakh and the value of your investments would have grown to Rs 4.54 lakh. Now that you are close to your target amount of Rs 5 lakh, it makes sense to book profits and keep the money in safer avenues.

Rebalance

Rajat Dhar, director of the Indian Investors Federation, said, “Rebalance your asset allocation if it has got distorted due to movement in stock prices.”

You need to rebalance your asset allocation if the deviations are large enough. Sell investments in an asset class that has done better and buy an asset class that is underrepresented. While rebalancing, remember to keep track of taxes and associated costs.

If you are closer to your financial goals, it is time to book profits in equities and move the money into good quality fixed deposits. There are many high quality fixed deposits offering good interest rates, Dhar added.

Tweak, but don’t stop

While investing in various asset classes, we take into account the view on the asset class.

For example, a year ago, many financial planners advised investing in short-term debt funds as interest rates were on the rise. These schemes clocked a 3-year return of 5.53 percent; outperforming government securities and funds that gave 5.09 percent in the same period.

Things have changed now. Most of the rate hikes are behind us. Now is a good time to start investing in longer-tenured bond funds through target maturity funds and G-Sec funds if you wish to stay invested for at least three years. Do brace for some volatility in the interim, though.

If your equity funds did poorly in the past 2-3 years, it could be because you may have held too many quality and growth strategy schemes. Put some money in value-oriented schemes as well. Strike a balance, especially if you are considering starting a fresh systematic investment plan (SIP).

Pankaj Mathpal, founder of Optima Money Managers, said, “When stocks are going up, there is always a possibility of correction. But that should not be the reason to stop your investments. Stagger your investments in equity funds through systematic transfer plans and SIPs.”

Dhar also advised against waiting for a correction.

“Continue your SIP and if there is a correction in December and January, keep money ready for some lumpsum investments,” he said.

Hidden opportunities

Experts also pointed to cheap technology stocks, especially international companies, which have declined massively this year. For savvy investors looking at geographical diversification, investing in developed markets such as the US can be an opportunity.

Shares of new-age technology companies where many investors had invested in late 2021 also dropped after experts highlighted the dizzying valuations prevalent when many of them had listed. Investors may want to invest in tech sector funds where valuations are attractive.

Sekhar sees opportunities in banking and metals. “Companies in the metal sector are expected to benefit from economies of scale, low leverage on balance sheets and gradual capital expenditure. Banks should do well as credit demand is expected to go up, given robust sentiment and rising investments,” he said.

“Manufacturing sector and PSU themes are doing well and aggressive investors may consider investments in schemes dedicated to these themes,” said Mathpal.

For those who wish to play safe and avoid fund manager’s risk, stick to index funds for now. But be prepared to stick around for at least five years.