Sensex at 50,000: What should you do with your investments now?

It was as if COVID-19 never happened. On January 21, the S&P BSE Sensex crossed 50,000 points for the first time ever. That’s a 91 percent rally from the lows of March 2020, immediately after the global pandemic was declared. Though Sensex closed the day marginally lower, it was enough to lift investors’ spirits. Those who waited patiently – holding on to their equity investments, or taking some money off the table – were glad they did so. But for fence-sitters, there is no need to despair. You can still make money from equity markets if you invest sensibly. But the big question first: will the markets continue to rise or is a crash imminent now?

How did Sensex get to 50,000?

To fight the economic slowdown owing to the COVID-19 pandemic induced lockdowns, central banks around the world pumped in unprecedented amount of money into the financial system. The idea was to encourage spending as well as to push banks towards lending more. In India, too, interest rates fell on the back of a slew of measures initiated by the Indian government.

Then, as vaccine production progressed, equity markets got a major booster shot and continued their upward march. Foreign investors continued invest in Indian markets, which further propelled the indices.

Though fund managers are optimistic about the future, many are waiting for corporate earnings to bounce back. “Though the major concerns on the economy are behind us, a clearer picture will emerge only after the fourth quarter earnings are announced,” says Mahesh Patil, Co-CIO, Aditya Birla Sun Life AMC.

Without corporate earnings recovering, valuations appear unrealistic at present, fund managers say. “Most positives have already been priced in. While many sectors are reasonably valued, some of them are in overvaluation zone,” says Nimesh Chandan, head of investments, Canara Robeco AMC.

Do not get swayed by past returns

How much more can the Sensex go up? Set your expectations right.

Corporate earnings are yet to catch up with stock valuations. If the vaccination program is implemented at a slower-than-expected pace or if earnings growth disappoints, markets are bound to correct. BofA Securities expects Nifty 50 to close the year 2021 at 15,000 – which means the upside is limited from where we are now. In fact, Chandan of Canara Robeco MF says that “market correction could come anytime. Investors have to be patient and understand how businesses would do beyond 2023.”

Want to invest in equities now?

Investing in equities at this juncture can be tough for many psychologically. Financial planners say it may not be advisable to  target returns. Instead, take stock of your goals and decide how much to invest in equity and debt. Avoid equities, if you need the money within the next three years.

If you wish to invest fresh sums now, the best way is to stagger your investments over the next three to six months into equity funds using the systematic transfer plan. You can start an SIP as well to channelize your regular income.

But where should you invest? At these levels, experts say it is good to stick to diversified equity funds. Though the themes such as healthcare and Information technology have done well, you can avoid them.

For new investors sticking to diversified schemes – especially from the large and large & mid cap categories – would be the best route to take. Most fund managers that Moneycontrol spoke to expect the on-going market-wide rally to continue. A broad-based rally involves many if not most segments and stocks rallying. Such a rally favours diversified equity funds.

Ravi Kumar TV, founder of Gaining Ground Investment Services recommends investmenting in value and dividend yield funds as well. “Value and Dividend yield funds allow you to participate in an uptrend but fail to do so during corrections,” he adds.

Nirav Karkera, Head-Research, Fisdom recommends investing in select balanced advantage funds at this movement. “These schemes allocate money to stocks and bonds using a valuation model. This helps in cutting exposure to equities when they are dear and scale up investments in equities if the valuations turn attractive.”

Expectation of a weak dollar has ensured that money flows into emerging markets. Ravi Kumar recommends investing in emerging market focused schemes. “These schemes can help you to benefit from the new age technologies and high growth businesses which are not available in India,” he adds.