As of writing this article, Nifty has breached the 21,000 mark while the Sensex is hovering around 70,432. The Indian stock market is at an all-time high! And this is when questions start arising in the minds of investors – Is it the right time to book profits? Should I invest more? Should I wait for a correction to invest more?
And then there are regrets– I should have invested more. If I had invested in this stock, I would be sitting with a lot of gains. Of course, regrets may be the perfect recipe for all the wrong things an investor will end up doing.
Hence, navigating these peaks in the right manner is important. In this blog, we will cover what the right strategy should be when the stock market hits new highs every day and what to do with your investments right now.
It’s essential to understand the nature of market peaks and that the peaks are part and parcel of stock markets, just like corrections. They are often fueled by positive economic data, strong corporate earnings, and a general sense of investor confidence. Remember that at this point, no one can say with certainty whether there is more left to this enthusiastic rally or we are going to see a market correction. Hence, instead of focusing on what you can’t control, you should focus on what you can – your behaviour, financial goals, and the risk you are taking.
Strategies for Navigating the Indian Stock Market When It Is At an All-Time High
Maintain Long-Term Perspective:
Amidst the excitement of an all-time high, it’s crucial to remember your investment goals. Don’t let the euphoria of the moment tempt you to abandon your carefully crafted financial plan. Resist the urge to chase fleeting gains or panic sell in anticipation of a potential correction. Remember, it is far more important to maintain a disciplined portfolio tailored to your objectives and focus on what you can control. Hence, don’t stop investing/wait to invest or start booking profits unnecessarily. Many investors choose to book profits in anticipation of corrections– this may be the wrong approach as one cannot time the correction, and one should take the perspective of the overall portfolio and financial goals. If your portfolio’s risk is still within your risk appetite or if the portfolio is well-structured as per the mapped goal, then unnecessarily disturbing the portfolio is futile. (more on this in the rebalancing part below)
On the other hand, many choose to stop investments or wait for corrections to invest. This is also the wrong approach, as it’s impossible to time a correction. If you are investing for a goal that demands a certain amount of SIP, the last thing you should do is wait for the market. Consistently investing via SIPs or rupee-cost averaging is a powerful strategy that can benefit you significantly during market peaks. It helps average out your cost per unit over time, reducing the impact of market fluctuations. In an SIP, you end up buying units at all market levels, which can average out the cost of your investments.
Peter Lynch, one of the most successful fund managers and value investors, put it very simply– “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves.”
Be Careful When It Comes To Lump Sum Investments
However, approach large lump sum investments with caution. The optimism that comes when the Indian stock market reaches an all-time high can be contagious, tempting you to invest in anything and everything. However, it’s crucial to exercise caution during such periods. Resist the FOMO (fear of missing out) and avoid investing in stocks you don’t fully understand or that don’t align with your long-term goals. Here, too, it is important to look at your portfolio and goal. Conduct thorough research, analyze company fundamentals, and only invest in a stock that has a solid track record, is trading at a fair valuation, and has a promising future prospect.
Rebalance Your Portfolio:
This is where our previous point on profit booking comes in. You can be tempted to book profits unnecessarily even when you might be holding the right fund or the right stock. But that doesn’t mean they have a comfortable allocation in your portfolio. Starting out, you may have allocated certain stocks or funds as per the risk you are willing to take. But as the market grows rapidly, these allocations shift, making your portfolio riskier than what you wanted. For instance, think of the small-cap stock allocation in your portfolio. Considering the riskier nature of the small-cap and your willingness to take less risk, you had allocated only 10% of your portfolio for these companies. As the market is near an all-time high, say, this small-cap allocation has increased to 15%. Don’t you think your portfolio is riskier now?
Hence, an all-time high might be the perfect time to re-evaluate your allocations. Consider making slight adjustments to your portfolio, perhaps allocating a slightly higher percentage to safer assets like large caps, bonds or gold. This helps balance your risk exposure and provides a buffer against potential market volatility.
Additional Tips:
- Stay informed: Keep yourself updated on economic news and market trends through reliable sources.
- Seek Professional Guidance: Navigating the complexities of an all-time high can be overwhelming, especially if you are new to the world of investing.
- Manage your emotions: Don’t let fear or greed influence your investment decisions. Focus on what you can control.
- Focus on value: Invest in fairly valued companies with strong fundamentals and a clear competitive advantage.
Remember, true wealth creation takes time and discipline. The market journey is a marathon, not a sprint. Reaching an all-time high is just one point in its continuous evolution. By remaining calm, disciplined, informed, and focused on your goals, you can conquer this and more investment peaks and pave the path towards a successful financial future.
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” — Paul Samuelson.
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~ Nischay Avichal
