Stock Markets at all-time high: Should investors invest in equities in a staggered manner?

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Updated: Dec 03, 2020 7:03 PM

Diversify and maintain your asset allocation in line with your risk tolerance level.

Stock Market, equity mutual funds, retail investors, Wealth, debt mutual fundIn 2021, we will continue to be still surrounded by uncertainties and slow growth.

2020 began with a lot of promises for investors but soon uncertainties and challenges emerged once the COVID-19 pandemic emerged as a real danger to the economy. Stock markets crashed but over time have rebounded and are up nearly 9.5 per cent year-till-date. There’s no escaping market volatility.

The best way to profit from volatility is to predict the turning points correctly—buying at bottoms and selling at peaks. But that’s easier said than done. In an exclusive interview with FE Online, Sameer Kaul, MD & CEO, TrustPlutus Wealth Managers (India), finds out what retail investors, especially those investing in equity mutual funds, need to do now. Excerpts:

Stock market indices are at a high while the economic conditions are yet to stabilize. What should equity mutual fund investors do now?

Markets discount the future and tend to run on expectations rather than on actual historical data. The market rose sharply following positive global cues, including positive reports of the development of effective Covid-19 vaccines and upbeat economic data from the US and China.

In India, GDP for Q2FY21 contracted by 7.5%. This data along with high-frequency indicators like PMI, GST collection, better earnings and financial conditions raises hopes for a quicker than expected economic recovery.

However, from valuation perspective markets look expensive. The weighted average P/FV (Price/Fair Value) of Nifty companies is now at one of the highest levels for available history. Given this, investors should be cautious and invest in equities in a staggered manner.

It is expected that RBI will keep the repo rate unchanged in its next meeting and may also revise upwards the inflation target. What will that signify and what should debt mutual fund investors do now?

The market is not expecting the RBI to come out with any fresh measures to aid the debt market in the monetary policy which is scheduled from 2-4 Dec as inflation remains above the upper bound of the RBI’s target range of 2-6% and economic growth has recovered at a pace faster than earlier anticipated.

Given this backdrop and also the current fiscal scenario, investors may be better off focusing at the shorter end of the yield curve. Investors may look at investments in the 3-5 year debt space.

For a retail investor, what are the major factors to consider while investing in 2021?

When you enter a new year only the calendar changes. The principles of investing remain the same. In 2021, we will continue to be still surrounded by uncertainties and slow growth. Investors should be cautious and ready for challenges.

  • Factors which investors should keep in mind:
  • Don’t get carried away by past returns
  • Valuations are important and historically mean reverting
  • Consider the risk-adjusted performance of various asset class/products and do not get carried away only by returns
  • Diversify and maintain your asset allocation in line with your risk tolerance level

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