What should I do after this steep rally in the market?
When investments are goal-oriented, Sensex or Nifty levels are irrelevant. However, you might think, why should I not book profits, when my investments have given decent returns?
Assume you have planned for 12-15 per cent returns and there is no scope for further increase. In that case it makes sense to book profit.
But the current situation is quite tricky. As I said in my April investors conference call, “I will not be surprised if the market hits an all-time high before the yearend.” Past experience has shown us that the liquidity in the system will ignore the fundamentals and hope for a better future. That, in turn, will push the market up. So, this has given me the conviction to stick my neck out and shout louder to comfort investors, because your portfolios have corrected by 25-40 per cent.
This time, apart from the liquidity issue, in the past one month, the results of companies have also aided the market to pull back faster. For example, the economy is shrinking this year and companies have seen their sales decline year-on-year for five straight quarters. But companies which are listed in stock exchanges have made profits in the quarter ended September the way they never did in the past 60 quarters. The top line (sales) has not jumped but the shrink in wages has pushed up profits.
Work From Home (WFH) is set to be the norm hereafter. If it is implemented for even one-fourth of the workforce, profitability of companies is likely to go up. This will help turn around several companies. Most of the prediction on the GDP is getting positive, and it will have a bearing on the top line growth for companies.
Given the situation, as an investor, I should ignore the 5-10 per cent short-term correction, which is normal in equity markets.
Except those who invested in early 2020, others will not be sitting on high double digit returns. Why? Of the Nifty 50 stocks,17 are still below their 52-week high. Similarly, in the midcap space, the three-year returns are still minus 3 percent. In the small cap space the 3-year returns are still minus 9 percent.
The action required from you, dear investors, is to wait and watch.