Here are some strategies for investors in these conditions
The domestic stock markets have been through a good rally over the last couple of months. The markets are trading close to their 30-month highs, propelled by good foreign institutional investor (FII) inflows. The markets are trading at crucial levels. There are no strong triggers at the domestic level and the global sentiments are on the weaker side.
Investors should look at reducing their exposure to equity and equity-based instruments, and stay in debt or cash to invest at lower levels when the markets correct.
Here are some strategies for investors in the current market conditions:
Book profits regularly
One basic strategy to maximise yield is to book profits at regular intervals. Analysts suggest investors should maintain profit and loss targets on investments and keep track of the triggers constantly. However, many investors don't have the time to follow the market developments constantly and lose track. Therefore, it is advisable to keep booking profits regularly whenever the prices move significantly.
Smaller milestones can be set in steps of 10 to 20 percent price movements. Regular selling and booking profits enables an investor to average out his opportunities and use them in a systematic manner.
Analyse signals
Analysing market news and company results is another way to identify exit signals. It is recommended to reduce exposure in companies that performed below market expectations during the recent quarterly results, especially if the market is trading at highs. These companies have a higher tendency to fall in case of a market correction.
Go for blue-chip
Since the markets are at a high, it's recommended to reduce exposure to highrisk stocks (mid-cap or small-cap). Those looking at remaining invested in equity should stick to blue-chip and large-cap companies. Usually, blue-chip companies have a lesser downside potential in comparison to their small-cap peers during market correction phases.
Look for sell signals
Identifying a sell signal in a stock needs understanding of the markets. However, investors can take a decision based on the quarterly results, analysts' recommendations or market reviews.
Allocate to debt
It is advisable to move a certain percentage of your equity portfolio into cash or debt as the market is at a high. There are many options that can used to diversify and invest the proceeds withdrawn from equity.
Some debt options:
Bank deposits
The basic features of a bank deposit are safety of the investor's principal amount, easy liquidation of deposits and accumulation of regular interest. The interest rates on bank fixed deposits are on a rise after the Reserve Bank of India's (RBI's) decision to tighten the monetary policy. Those looking at parking their excess funds for a short term can look at depositing them in a fixed deposit.
Also, investments in savings bank accounts have become more attractive after the RBI's mandate to calculate interest rates on a daily balance basis.
Liquid funds
These instruments are good options for short-term investment needs. They can be liquidated quickly, and hence come in handy for those looking for an option to park their cash while waiting for opportunities to invest. The money in liquid funds is as liquid as in savings bank deposits, but yields slightly higher returns.
Therefore, if an investor is parking a big amount of money for a short term, he can look at investing it in a liquid or liquid plus fund.
Gold
Investments in gold have given good returns since the last few years. As global concerns are rising, the outlook on gold is quite good for the short to medium terms. Investors can look at investments in gold through gold exchange-traded funds (ETF) or through gold coins.
Gold ETFs are like mutual funds whose value depends on the price of gold. Usually, each unit of gold ETF represents one or half a gram of gold as the underlying asset. The units of gold ETFs are tradable in the markets and easy to maintain.
