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Business News/ Money / Personal Finance/  As the bull run continues in the market, it is time to exercise caution, say experts
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As the bull run continues in the market, it is time to exercise caution, say experts

As small cap funds tend to grow faster during a bull run, it is important to check the portfolio for risky stocks and consider reallocating towards large caps or debt funds.

When markets do well, small caps tend to do even better Premium
When markets do well, small caps tend to do even better

As bulls continue their run on Dalal Street, retail investors have more reasons to cheer than one. Sceptics may say that the music may stop anytime, but the optimists argue that it is hard to stop dancing when the music is still on. Both benchmark indices have hit their lifetime highs in quick succession on numerous occasions in the past couple of months.

Consequently, benchmark indices have posted double-digit returns until Dec 22. BSE Sensex 30 spiked 16 percent between Jan 2 to Dec 22 when the market closed at 71,107. Nifty 50, too, demonstrated equally good performance and rose 17 percent until Dec 22 upon settling at 18,197.

As an investor, one might wonder if this bull run is sustainable, and if not – when exactly will the ‘party’ be finally over.

Here we delve deep into this and explore what exactly should investors be doing amid this ongoing bull run.

Indices                                       Jan 2 Dec 22 Increase (%)
BSE Sensex                                    61,16871,10716
Nifty50                                 18,19721,34917

Profit-booking

One expert opines that investors can explore the option of booking profit if a bull run has led to a higher value of equity far beyond the predetermined ratio.

Let us suppose an investor ‘X’ aimed to keep the equity portion of his portfolio under 60 percent. As a result of the bull run, if the equity portion has now surpassed 75 percent of his portfolio, then it is recommended to redeem 15 percent of the portfolio in order to do the rebalancing.

“Investors can book profit if the asset allocation is skewed towards equity. By doing the profit booking, one can do the rebalancing," says Amol Joshi, founder of Plan Rupee Investment Services.

“Another scenario of booking profit could arise when your expectation from that particular investment has already been met. And if someone wants to make a fresh investment, one can do so in the hybrid funds in the next six to eight months via STP (systematic transfer plan)," he adds.

Exercise caution

Another point worth noting is that amid the bull run, small cap funds tend to grow even faster, making the portfolio more vulnerable to volatility.

Deepesh Raghaw, a Sebi-registered investment adviser, says, “Markets have done pretty well of late, and whenever that happens, small caps perform even better than the benchmark index. This trend may continue but we don’t know for sure. So, it is recommended to make some room for contingency. We should check what risky stocks are there in the portfolio and exit them in favour of either large caps or debt funds."

“It is better to check the portfolio and if it’s highly skewed in favour of risky assets, then it is recommended to reduce the allocation," he adds.

Regardless, the generic financial advice of keeping calm rather than getting carried away with market euphoria always comes handy.

Aptly, Deepak Gagrani, Founder, Madhuban Finvest, explains, “As Indian stocks soar, it’s crucial for investors to focus on emotional intelligence and stick to their asset allocation strategy. Guard against FOMO, avoid big commitments, and don’t exit, solely based on market fears. While maintaining equity exposure, consider rebalancing towards underperforming large caps for better valuation comfort."

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Published: 23 Dec 2023, 12:05 PM IST
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