Retail investors needn't be too greedy

Get rid of bad-performing funds or stocks; don't disturb current investments

The BSE Sensex is at an all-time high of 29,279. Over the past year, it has given substantial returns, of over 36 per cent. Both these numbers should bring a smile to retail investors. But there is always that doubt in his mind whether the good run will continue.

The fears are legitimate because only seven years ago, on January 7, 2008, the Sensex had stood at an all-time high 21,206. From there, it plummeted. In 2008, the benchmark index had five single-day falls of more more 850 points each. Since then, there was a long and arduous journey for investors till the Sensex hit multiple new highs in 2014, and continued with its good run in 2015.

But analysts are bullish this time. "While we are nowhere near the bubble territory, the market has moved up significantly in the past 15-18 months, which calls for caution," says Ajay Bodke, head of investment strategy & advisory, Prabhudas Lilladher.

According to Deven Choksey, managing director, KR Choksey Shares & Securities, this is the time to buy with a long-term view in mind. "Buy and hold for at least three years and make sure you hold some cash to pump in during market corrections," say Choksey.

Times, indeed, are good
Analysts believe India is in the middle of a structural bull run and the country's economic situation is gradually improving. Many believe Indian equities will gain up to 20 per cent this calendar year. "Investors should stick to their asset allocation and not shift money from debt to equity just because the market is doing well. At the same time, don't book profits now if you don't need the money," says Suresh Sadagopan, a certified financial planner, adding investors should continue to invest regularly - either directly or through the mutual fund route.

Careful about mid-caps
Experts believe retail investors should stick to those companies that have high cash flows, a track record of strong earning growth and are managed to weather different business cycles. Be especially cautious when it comes to buying mid-cap stocks. Look for companies that have significant market share in their respective domains and have unique product offerings, and stay away from the firms where promoters have been in the news for the wrong reasons. "Investors should not buy mid-caps unless they have sound research to fall back on," says Choksey. If you have stocks or funds that have not done too well, this could be a good time to exit those, because their fortunes, too, might have turned in a broad-based rally.

Stay away from flavour of season
The BSE Mid-Cap and Small-Cap indices have risen 63 per cent and 73 per cent, respectively, in the past year. Bodke advises investors to stay away from fad stocks that are a feature of every bull market. For instance, he explains, several technology, media and telecom stocks surged exponentially in the late 1990s, only to crash later. Similarly, in 2006-07, investors were gung ho on real estate and infrastructure plays focused on the power generation sector - the bets went awry. Stay away from real estate stocks, as many of the firms in this sector have high debt on their books, and huge inventory build-ups. Also, despite a reduction in interest rate, demand for home-buying is unlikely to pick up in a hurry, unless prices come down.

Be selective
With interest rates on their way down, investors can look at interest-rate-sensitive banking and automobile stocks. Banking stocks have run up quite a bit in the past year, so investors need to be selective about their picks. Look at valuations, as well as asset quality. It might be a good time to shop for quality names among public-sector undertakings, as some of these are available at attractive valuations. While many private-sector lenders are trading at 2.5-3 times book value, public-sector banks are trading at one or less than one time book value, according to experts.