History suggests retail investors joined the rally near highs and booked profits or closed positions when the time came to add positions.
It is not the time to invest because of the massive up move we saw in the last few days. The market might be overvalued right now. If these are your thoughts, rest assured you are not alone.
History suggests that retail investors joined the rally near highs and booked profits or closed positions when the time came to add positions. Well, the market is certainly not at its peak but the risk-to-reward ratio might have come down at least for the near term.
But, if you plan to stay in the market for the long term – the time is still right, suggest experts, and efficient portfolio allocation would be the key for wealth generation.
The market has sprinted in March to reclaim lost glory as Sensex and Nifty both are above crucial resistance levels.
The S&P BSE Sensex has rallied 2,157 points, or about 6 percent, so far in March while Nifty50 has registered a vertical climb of 634 points, or 5.8 percent.
So, what fuelled the rally? Well, a host of global as well as domestic factors led to strong risk-on sentiment towards equities. The gush of liquidity from foreign institutional investors of about Rs 19,000 crores has been the major factor driving the rally.
“Weakness in the US dollar is normally positive for emerging market inflows and India has got more than the fair share of foreign inflows due to improving macro scenario and market sentiments,” Gaurav Dua, head of research, Sharekhan by BNP Paribas told Moneycontrol.
“Recent events have increased the probability of the NDA government gaining higher than earlier expected seats in the forthcoming elections boosting market sentiment. The rally is seen across financial markets - equities, bond and appreciation in the rupee despite the rising fears of fiscal slippages,” he said.
Time to put additional funds?
Experts feel that the time is fairly right for investors to get into market and dips, if any, should be used for making a diversified portfolio which leads to long-term wealth creation.
Here are views from various experts on allocation if you are looking to invest right now. We have taken Rs 10 lakh as investment corpus:
“The strategy at the current phase should be focused towards having a proper balance across different asset classes. And therefore, by keeping a long-term view, an investor can allocate 40 percent of total amount, say Rs 10 lakhs, in quality large-cap companies coupled with a marginal allocation of 10 percent in midcap/small cap companies which have to be backed by decent valuation,” Dinesh Rohira. Founder & CEO at 5nance.com told Moneycontrol.
“It is also practical to allocate 30-40 percent of overall allocation in debt instrument with short-to-medium maturity papers given a possible pause in interest rate regime going forward, and remaining 10 percent to be allocated in gold or gold funds,” he said.
He further added that while investing in equity, one should follow a staggered approach and gradually increase the allocation once the market stabilizes in a fair trend.
Shivendra Foujdar, Founder and Managing Partner, Avighna Trades is of the view that if an investor plans to invest Rs 10,00,000 now in the market, he/she would allocate the capital this way — 60-70% in equity (within this, one can invest 50% in largecap stocks and 30% in good quality midcaps, 10% in smallcaps and the rest 10% in high dividend yield stocks).
From the remaining, 20% amount should be invested in bond market and 10% in monthly recurring schemes. So that if the market corrects from higher levels the portfolio or financial planning of individuals should not be in trouble.
Rajesh Cheruvu, Chief Investment Officer of WGC Wealth suggest that portfolio allocation should be based on the risk profile of the investor.
Getting into top-down portfolio construct, broad strategic asset allocation should be between equity (including large, midcap, developed market equities, and emerging equities), fixed income (includes liquid, arbitrage, overnight funds) and gold.
Cheruvu further added that gold exposure should be taken across any investor risk profile given the recent slowdown in global growth has fuelled the strength seen in the asset perceived as a “flight to safety”.
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