Good Time To Rebalance Your Portfolio

Even seasoned stock investors are concerned about the stock indices’ ongoing decline.

The Sensex and the Nifty 50, two leading indices, have fallen by around 15% from their respective 52-week highs of 62,245 and 18,604 (on October 19, 2021).

However, the current slump is a chance for investors with a strong tolerance for risk to select equities at favourable prices.

Correction may continue

If inflation continues to rise, the markets may experience further corrections, which would force central banks like the Reserve Bank of India and the US Federal Reserve to raise interest rates and tighten liquidity.

“The forecast for corporate profitability and economic growth in the foreseeable future is not very promising. It is impossible to rule out additional equities market corrections. In the near future, the equity market will continue to be volatile, with more risks to the downside than the upside “explains Pradeep Gupta, vice-chairman and co-founder of the Anand Rathi Group.

The director of investment services at Transcend Capital, Kartik Jhaveri, concurs.

“In the worst-case scenario, the Nifty 50 might keep declining and reach as low as 14,000 points. On the Sensex, that equals roughly 46,500. It seems likely that present levels will drop another 10%, “He claims.

The significant sell-off by foreign institutional investors shows how the gloomy mood around the world is impacting the Indian markets.

But if the conflict between Russia and Ukraine is resolved and the central bank is successful in keeping inflation stable, sentiment may change.

“Compared to most worldwide competitors, the Indian market is in a considerably better position. As was the case between late March 2020 and mid-October 2021, we anticipate the Indian market to rally sooner than other markets as sentiment improves “Gupta said.

Time to place contra bets?

Indian stock prices have increased in appeal as compared to long-term averages (see table).

“Due to values, equity investing does look appealing at this time. Investors should progressively finish their intended allocation to equities over the following six months, “affirms Jhaveri.

Co-founder of StockEdge and Vivek Bajaj suggests exercising cautious.

“Investments in contra are high-risk, high-return wagers. Only knowledgeable investors should place these bets. Newcomers should stay away from them.”

Serious stock investors should ideally continue researching stocks.

They should make a list of the stocks they want to add to their portfolios based on their study.

Along with identifying the names, they should also make an estimation of the price at which they want to buy them.

When those stocks reach appropriate valuation levels as a result of the market correction, investors should buy them.

What to buy

Investors must be judicious in how they allocate their capital because not all industries will benefit from the next market upswing when it occurs.

When the market rebounds, “we anticipate FMCG, auto, and pharma to perform strongly,” adds Bajaj.

From a one-year view, we are optimistic on financials, information technology, and investment-related issues like infrastructure, capital goods, and cement, according to Gupta.

“We have a more bullish outlook for mid-cap companies over the medium term. However, large caps are likely to outperform mid- and small-cap equities during the current phase of volatility, “He claims.

Seniors should stick to large-cap equities, while younger investors may incorporate mid- and small-cap firms in their portfolios, says Jhaveri.

Rebalance if required

The continued fall in the value of stocks would have caused you to be underweight in this asset class if you already managed an asset-allocated portfolio.

It might be wise to increase your investment in stocks at this time to rebalance your portfolio.

As long as your asset allocation allows it, Gupta advises taking advantage of the recent market fall to enhance your equity holding.

Avoid lump-sum investments due to the possibility of additional correction. Jhaveri advises to “average out the expense of your purchases across the following few months.”

Also stay away from quick bets.

“Three years should be the bare minimum holding period for stocks. Try investing with goals in mind. Connect your equities portfolios to definite objectives like retirement, the buying of a home or automobile, etc “claims Bajaj.

When you do this, you will either sell your holdings when your objective is met or when the stock’s fundamentals start to worsen.

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