Home / Markets / Stock Markets /  Anand Rathi's co-founder on mistakes investors should avoid in a bull market rally

Indian stock markets continue to hover around record high levels touched during this year's bull market rally when benchmark index Sensex crossed the crucial 60,000 mark whereas Nifty 50 surpassed the 18,000 milestone.

Amid the outperformance of the equities, Anand Rathi Group's Co-Founder & Vice Chairman Pradeep Gupta in an interaction with Mint talked about the way forward for this market, broking business, stock-picking strategies, mistakes to avoid when markets at highs, key themes to bet on and more. Edited experts:

How to approach the current market

I believe that asset allocation is the most important investment decision. Investors should consider three major aspect before making any financial decision, which is: risk taking ability, time horizon of the portfolio and return expectations. This does not and should not depend on the phase of market and business cycle. It's the time in the market and not timing of the market that attributes to consistent long term wealth creation. 

Also, whenever there is a deviation from the original set asset allocation plan, the investor needs to rebalance their portfolio accordingly.

Equities as an asset class is volatile in the short term, therefore, possibility of a 5-10% market correction in the short-term cannot be ruled out. At the same time, continued rally in the equity market is also a distinct possibility, timing the market accurately is not possible.

The consistent and less risky way to make significant portfolio return is, therefore, to remain invested in the market and not to get unnerved by the possible or actual corrections in the equity market.

Stock-picking strategies 

While looking at specific stocks, one needs to do a bottom up approach, they need to look at cash-flow, the quality of management, business structure, etc.

Overall the economic and political environment also play an important role while looking at the stocks. As we all know, the market always gives valuation to future or expected profitability and that's where many a times investors get confused with high/low valuation.

Mistakes investors should avoid when markets at highs

Investors should not go with a herd mentality, one needs to do proper in-depth research and always stick to quality management with profitable and cash generating businesses. I would strongly recommend an absolute newcomer, who has interest in the equity market, should come through a more managed route like mutual funds. 

These funds are managed by experienced fund managers along with a strong team; alternatively they can even take help of a more informed advisors while taking investment decisions. While investing in mutual funds, the investments should be properly allocated basis the risk profile, they can take an SIP route during such high market levels.

Broking business

Overall in the past 2-3 years, any investor who is invested in the financial space is doing well, and the result can be seen form the rise in the incremental customer base added in the market and the rise in turnover at the exchange level.

This time many young investors and those who earlier had investments in fixed investments were attracted to the equity market, looking at the exponential returns that equities had provided and we witnessed a movement from there to equities too.

Many young players had also entered in this space in the last 2 years because of extensive digitization which enabled financial literacy and witnessed a rise of entrants from investors coming from Tier 2 & Tier 3 cities have also participated in a big way.

Key themes to bet on

From the March 20 bottom, small caps have rallied over 225%, mid-cap 170% and large cap 130%. I expect the outlook for Indian equity market for the next financial year to be positive. There has been a significant improvement in the macroeconomic environment in the country with major bounce back in manufacturing, utilities, infrastructure activities and select segments of the services sector. 

From a 12 month perspective, one can look at increasing allocation in large cap and reducing in small cap. From sector perspective we like investment theme over consumption for a 24-36 month perspective, specifically sectors like construction, real estate, cement, metals and financials.

Outlook for equity market

I expect the outlook for Indian equity market for the next financial year to be positive. Corporate performance during the last 2 quarters have also been better than expected. The guidance of the US Federal Reserve indicates that the global interest rate and liquidity situation will continue to remain extremely accommodative, at least for the next 2 years.

The only risk I foresee looming over the market is any geo-political or any unforeseen event based risk such as the pandemic worsening, natural calamities, etc. which may impact short to medium term period due to a knee-jerk reaction to such events. Moreover, 5-10% market corrections are common even during a structural bull run.

Sometimes in short to mid-term, during the consolidation phase, 5-10% market consolidation is possible, which should not be seen as a huge negative, if all it happens.

Therefore, while I am positive on the medium to long term outlook of the Indian equity market, this, by no means, imply that the market movement will be unidirectional, in the short term the volatility is expected to continue.




Saloni Kothari

Covers markets, personal finance and economy for Livemint and currently hosts the 'Millionaire On A Budget' podcast
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