Be smart, be safe

Don't rush to buy or sell aggressively. At best, exit stocks and mutual funds performing badly if there are profits

Retail investors would be safer if they don’t get overexcited by the surge in the BSE, or Sensex last week. Not that it is easy to ignore a 800-point a-week spike in the benchmark index.

The reason for the euphoria is understandable. For almost six years, many investors have been sitting on stocks – many times, even blue-chips – that have gone nowhere. As a result, they have sold stocks and mutual funds at every stage when the market has shown some promise. Is this rally any different?

Says Nilesh Shah, managing director and chief executive officer, Axis Direct: “Retail investors should be careful about such rallies as there is an event (election) risk. But there will also be an opportunity to buy technology and pharma stocks cheaper, in which rotational movement is happening.”

Market experts see an opportunity to buy technology and pharma stocks because after a long time there has been some correction in these stocks. Stocks like Dr Reddy’s, Sun Pharma, Wipro and TCS have fallen five to eight per cent in the past week. They expect some more correction in these stocks.   

The good news, however, is somewhere else. This rally is also highlighted by rise in infrastructure, real estate and public sector banking that have been under pressure for quite some time. There is an opportunity for investors to exit stocks and mutual funds which have not been doing well. “They need not exit immediately but in the next two months, the beaten-down sectors are likely to perform better and give opportunities to investors to exit,” says a CEO of a brokerage house.

In the past week, the category average returns of infrastructure funds, suffering for the past few years, was up 6.4 per cent – the second-highest gainer. UTI Infrastructure Direct returned the best at 8.5 per cent. The category average returns of banking funds were the best at 9.33 per cent.    

A word of caution: Trying to deploy any fresh money aggressively or pick any stock whose fortunes seem to have turned can hurt. So, if you think the fortunes of the infrastructure sector or public sector banks have changed suddenly and want to join the party, your portfolio could suffer. As  Finance Minister P Chidambaram said last week, the non-performing assets of public sector banks are going to be higher in 2013-14 than last year. And, till a new government comes, the infrastructure sector is unlikely to get a big push despite clearances. Says Hemant Rustagi, CEO, WiseInvest: “The idea is not to get over-enthusiastic and see this as a great opportunity by putting fresh money. In fact, there is no rush to even exit aggressively.”  At best, if you are sitting on cash, deploy 5-10 per cent for short-term play. But remember that there will be a tax of 15 per cent on short-term capital gains. It’s time to play safe.