Investors should wait for Lok Sabha election results before taking a call

The sharp rise in the BSE Sensex – up 3.75 per cent or 1,421 points – left market players and stock market investors pleasantly surprised on Monday. 

It wasn’t unexpected, given the exit poll prediction that the National Democratic Alliance (NDA) government will make a strong comeback at the Centre. The market was looking for stability, and the outcome may be exactly that.

Retail investors also find themselves in a sweet spot after the 2,000-point rally in the last two trading sessions. The question many existing investors would be asking is whether it is a good time to book profits, or should they wait for some more time. Says investment advisor Arun Kejriwal: “Given the sudden rise in the last two days, most retail investors would have missed this rally. But don’t fret. If the exit poll numbers are confirmed on Thursday – the results day – the rally will only get wider. Don’t make any moves till then.” And there would be enough opportunities to do some profit-booking.

However, don’t go overboard in profit-booking. As Radhika Gupta, CEO of Edelweiss Asset Management points out: “Those with a longer-term horizon should not become short-term in nature and book profits in equities entirely. If you have longer-term goals, then it is important to stay invested in equities.” Some profit booking is okay to stay in line with your asset allocation. According to her, the big risk is that people could lose touch with reality in such a market scenario. There is the risk of investors going overboard. For mutual fund investors, there is the risk of forgetting their asset allocation. “Investors should not overload on equities,” she says.

Sanjay Sinha, founder, Citrus Advisors, says: “Today’s (Monday’s) sharp rally has to be seen from the perspective of the sharp fall that the markets had seen continuously for eight days, before recovering towards the latter part of last week. Since the fall was sharp, the recovery was also dramatic.” Says Jinesh Gopani, head-equity, Axis Mutual Fund: “The markets love continuity, and the exit polls suggest a majority win for the current government. Short coverage would have also happened. Those who were on the sidelines may also have entered the markets.”

The prospect of a stable government has cheered the markets, but some experts believe that it is a temporary phase. “These are times when retail investors should be very cautious. If they are sitting on good profits, it is time to book some of it,” said a fund manager. According to him, the current rally is entirely because the NDA is expected to come back to power with a significant majority. However, the fundamental problems of the economy, such as slowdown in the consumption demand, NBFC crisis and others haven’t really gone away.

He cited the example of the Nifty, which stood at 5,400 in August 2013, and rose to 7,330 by May 28, 2014. Within two years, by February 12, 2016, it was back to the 7,100 levels. “The government needs to take quick action to rectify problems in the economy. If it waits for too long, things are likely to get worse,” adds the fund manager.

When the markets are on a roll, it’s a good time for retail investors. But wait for a couple of days before taking any call.