The market seems to be celebrating the Diwali festival in advance as the BSE Sensex soared above 60,000 for the first time, while Nifty50 is heading for the 18,000 mark, as a slew of positive factors overshadowed negatives such as worldwide fears of debt default by China’s real estate giant Evergrande.
The BSE Sensex has taken 166 trading sessions to scale the 60,000 mark today, from the 50,000 levels first seen on January 21 this year, while the Nifty50 added around 3,300 points in the same period to hit a record high of 17,947.65 today.
Investors are richer by Rs 65 lakh crore in the Sensex journey of 10,000 points in the last eight months as the BSE market capitalisation jumped to Rs 261 lakh crore from Rs 196 lakh crore.
Most experts believe the market is in a bull run that may continue for next 2-4 years given the slew of measures and initiatives such as Make in India and Atmanirbhar Bharat taken by the government in recent years to make the country a manufacturing hub and $5 trillion economy by 2024-25.
“We remain constructive on the equity markets over the next 2 to 3 years to come backed by strong economic rebound and better-than-expected corporate earnings,” said Rupen Rajguru, Head of Equity, Investments and Strategy at Julius Baer.
Earlier in the September, Amar Ambani, Head – Institutional Equities at YES Securities had confidently said the outlook for next four years was extremely positive and envisioned the Sensex hitting 1,25,000 by December of 2025.
“We continue to remain positive on the long term outlook of Indian equities. Corporate balance sheets have been significantly strengthened with record equity raise in the last two years. On the revenue front, the listed universe is on firm ground with an accelerated trend of unorganized to organized, digital super-cycle and sustained cost management. We expect the government to continue spending on infrastructure and fast track the reform agenda as we have seen with lowered corporate tax rates, PLI schemes, RBI support, strategic divestments and so on. With accommodative financial conditions worldwide, we see the mega rally in risk assets continuing,” Amar Ambani reasoned.
Since the lows of March 2020, lockdowns disrupted economic activity, the benchmark indices have shot up more than 135 percent, the BSE Midcap index climbed over 160 percent and Smallcap index rose over 210 percent. From the last record high (in January 2020) before Covid crisis to current levels, the frontline indices gained over 40 percent.
In the 18 months since the lows of March 2020, sectors like Auto, Bank, Energy, Financial Service, Infra and Pharma gained more than 120 percent each, while Metal was the biggest gainer with 275 percent gains, followed by IT (up 229 percent) and Realty (up 183 percent).
So is it time to rebalance portfolios?
Most experts say that given the bumper returns in the last several quarters taking the benchmark indices to new highs, investors should start rebalancing their portfolios as all sectors barring auto have given superb double digit returns in the current year 2021, turning lot of stocks expensive now.
“Considering the high valuations in some pockets raising concerns about valuations, it is our view that investors should take this opportunity to re-balance their asset allocation and if the skew towards equity has gone up by sheer market appreciation than investors can book profits in equity and get back to the original debt-equity allocation,” said Rupen Rajguru.
Nimish Shah, Chief Investment Officer – Listed Investments, Waterfield Advisors also advised that one can rebalance portfolios and revert to long term strategic allocation to large caps by exiting laggards and trimming the tail in mid and small caps, many of which may be overvalued right now.
“Market valuations are high but on the flip side the underlying economic growth is favourable. We would suggest not to be underinvested in equity,” Shah said.
Nirav Karkera, Head of Research at Fisdom, too, feels it is a great time for investors to review portfolios and align asset allocations with the targeted allocations.
In the near term, according to him, broader indices are expected to continue inching upwards. “Domestic factors of a strong commitment to economic growth by the administration and central bank coupled with a meaningful pace of public health improvement and the administration’s efforts to stimulate the economy back through initiatives like the launch of India’s first bad bank are being reciprocated by strong investor sentiments,” he said.
On the risk, Karkera said, “risks of a faster rollback of systemic liquidity or a disappointment in corporate earnings warrant caution. Any shock in the form of materialisation of looming risks could snowball into a correction faster than expected.”
Time to move to quality largecaps
“Sensex at 60,000 is a possibility today. Reaching this milestone would be quite an achievement in these Covid times and a shot in the arm for bulls who are in total control of this market,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
He feels the market exuberance has pushed valuations to very high levels. “India’s valuation premium to emerging markets peers is above 80 percent now. This is difficult to sustain.”
According to Vijayakumar, investors may think of reducing portfolio risk by moving to the safety of high quality largecaps. “Partial profit booking in the mid and small-cap segment and moving some money to fixed income also may be considered.”
Sandeep Bhardwaj, CEO – Retail at IIFL Securities said retail investors must have a diversified portfolio at this stage to face any kind of volatility.
“Expectations of solid economic recovery and sustained growth in the next couple of years is keeping the bulls enthused. Also from a global funds perspective, India remains an attractive destination, especially in the China+1 scenario,” he said.
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