Investors may find it increasingly difficult to manage their investments when the markets trade at life-high levels, here's a three step guide.
Sensex has crossed the 33,000 mark, and the fifty-share equity benchmark Nifty too continues to trade at all time high levels, buoyed mainly by the bank recapitalisation push. In the year so far, Sensex has returned nearly 25%. Global brokerages Goldman Sachs and CLSA have retained their bullishness on the Indian stock markets. Goldman Sachs has raised Nifty 2018 target to 11,600 vs 10,900 earlier, while CLSA has maintained an overweight position on India. These actions make one point very clear- the rally is here to stay. At such a time investors may find it increasingly difficult to take a call regarding their investments. Here’s a short three point guide as to how to invest when the markets trade at such life-high levels.
Earlier this month, Ridham Desai of Morgan Stanley said that investors, in their urge to time the market, may have missed out on the bulk of returns in the stock market. In Morningstar Conference held on 11th October, Ridham Desai said, “We have computed the number of trading days since 1995, we’ve had 5,500 trading days. In that period, the index is up about 900%. The best 100 days have produced 600% of this 900% return. So, if you missed those 100 days, in your urge to time the market, you’ve missed bulk of the returns which the markets have produced.” Bringing home the point that the investors should remain invested rather than attempting to time the market, he said, if you had avoided the worst 100 days, your returns would have been 1,400%, which would have been near impossible to identify.
Look for undervalued stocks in pharma and IT, than overvalued financials
The rally in financials may not be backed by fundamentals, say experts. In the year so far Nifty Financial Services index has returned more than 38%. Saurabh Mukherjea of Ambit Capital told ET Now, “What we’re telling clients is look at the sectors where nobody wants to invest. Look at IT and pharma, there are very high quality franchises, which are trading at 14, 15-16 times earnings, with solid cash generation, high 20’s Return on Equity, both in the large-cap IT stocks, and mid-cap pharma stocks. There’s plenty of value there, but investors currently don’t want to look there. They are looking at overvalued financials.” Top experts are now advising investors to look at beaten down sectors such as IT and pharma. In an interview to ET Now, S Naren of ICICI Securities said, “We are going to see that in the next three years, rupee is likely to go back to the old depreciation situation. The two principal exports of India are IT and pharma. Actually they have got hurt in the last four years due to a flat rupee. We think they will gain out of a flat rupee depreciation from here over the next 2-3 years.” In an interview to CNBC TV18, Kenneth Andrade, Founder, Old Bridge Capital said, “You effectively find value where there is no growth. Where the industry is actually beaten down, and they earn below the cost of capital. These are also times where markets actually consolidate, to two or three businesses. That’s a happy hunting ground for us.”
Be stock specific
While you may be convinced that there maybe a rally in beaten down sectors such as IT, pharma or telecom, experts say that the investors should look for specific stocks in these industries. In an interview to CNBC TV18, Rakesh Jhunjhunwala said last week, “ I would say the worst is behind us in the pharma sector. The rebound will depend a lot on the individual companies.” Raamdeo Agrawal of Motial Oswal says that the investors must buy a good company stock and stick to it for a long time. He also explains that the investors should try to have a minimum number of stocks in their portfolio. In an recent interview to ET Now, Raamdeo Agrawal said, “I started buying stocks in 1980 so till about 1994 I used to think I am very smart guy and in my 10 crore portfolio I had 200 stocks more than 200 stocks all sorts of junk were there, some good stocks were also there. Then I took one after I read Buffett first time I cleaned up the portfolio and I had only 15 stocks that very year my portfolio doubled. Buying good company is very important and holding it for long time both are important.”