After four months, the S&P BSE Sensex reclaimed the 60,000-level. The index closed 0.7 percent higher at 60,260 points on Wednesday. It has been a volatile year for the stock market, with the index gaining just 1.8 percent year-to-date.
In the first half of the year, the market benchmark index has been under pressure due to rising oil prices, interest rates, Russia-Ukraine war, fears of US recession and selling by foreign portfolio investors (FPIs). However, in the second half there have been positive cues.
FIIs have turned net buyers of Indian equities from net sellers, oil prices have dipped, concerns around inflation and interest rates continue, but the sentiment is that the worst is behind us.
In the last two months, these positive sentiments have led the S&P BSE Sensex to clock gains of over 17 percent.
But what should you do with your equity investments on the back of this sharp rally coming in such a short span of time?
New investors can take profits
Kavitha Menon, founder of Probitus Wealth, says that new investors who started investments in 2020 when the market was at its lows, can take out the profits out. “However, older investors who are experienced enough to handle market volatility can stay put,” Menon says.
She adds that investors should keep faith in equities as an asset class, but should tone down their return expectations.
“Investors should not expect the double- or triple-digit returns that they got over 2020 and 2021. But, there are several reasons to be bullish on equities. The worst of inflationary pressures seem to be behind us, oil prices have cooled off, and corporate earnings have improved,” Menon points out.
Don’t rule out volatility
Financial planners say that despite the sharp run-up over the last two months, there is bound to be volatility in the market and investors should be prepared for that.
“We would advise investors to continue investments through systematic investment plans (SIPs) or systematic transfer plans (STPs). We can still see couple more phases of corrections in the markets, nobody can rule that out with certainty. So, SIPs and STPs can be good risk-management tools for investors in the current market environment,” says Nisreen Mamaji, founder, MoneyWorks Financial Services.
“Investors who need money, or are nearing their financial or retirement goals, can re-balance and move the funds to debt. But, they must keep in mind that debt fund investments have higher taxation impact at the time of withdrawal,” Mamaji adds.
She says that investors with long-term financial goals should continue to stay put in equities.
Wait and watch
Between January and June, FPIs net sold Rs 2.17 trillion worth of Indian equities. In the last two months, FPIs bought back just a fraction of this amount at Rs 41,705 crore.
Financial planners say this shows that if there is significant re-purchase by FPIs, even higher levels are possible. “We have advised investors to be in a wait-and-watch mode as the market can go anywhere from here,” says Deepak Chhabria, Chief Executive Officer and Director, Axiom Financial Services.
Kirtan Shah, founder and CEO, Credence Wealth, says while both inflation and interest rates seem to have peaked, US markets are trading at expensive valuations than long-term averages. “If there is a correction in the US market – whether time- or value-correction – it will have some impact on Indian equities as well,” he says.
“Equity markets tend to take investors by surprise. The last few weeks rally has once again surprised investors both by its speed and scale. Investors have started questioning whether the first six months of weak market is in the past. Most fund managers are still cautious in the short term as variables are still in play,” says Ravi Kumar TV, founder of Gaining Ground Investment Services.
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