Nifty50 nearing 20,000: What should investors do? Experts weigh in

As the bellwether index Nifty50,  inches closer to the psychologically important level of 20,000, investors tend to shy away from buying stocks because they believe that they are trading at expensive valuations but experts believe there are still  undervalued stocks with good upside potential.

In the last fifteen sessions the Nifty has rallied over 1100 points.  

"The Nifty rally hauled daily and weekly stochastic oscillator in overbought conditions, indicating minor profit booking in recently run up stocks can not be ruled out. Thus, dips should be utilised to accumulate quality stocks as strong support for the Nifty is placed at 19500," said Dharmesh Shah, research analyst at ICICI Drect Research.

The Nifty midcap index scaled to fresh lifetime high while small cap index is still 5% away from its all time high. 

"Structurally, since March buy on dips strategy has continued to fare well as Nifty has not corrected more than 400 points  while sustaining above 20 days EMA. Thus, any decline from hereon should not be construed as negative instead capitalise it as an incremental buying opportunity," added Shah. 

Moreover, foreign portfolio investors have invested Rs 1.5 trillion in India in the last four months since March 2023 lows,  outpacing other global markets, noted the ICICI Securities report, which implies that markets are poised to edge higher. From

the quarterly perspective, flows in India were almost thrice than the nearest competitor. The same is reflected in terms of performance where Nifty was able to scale fresh life highs while rest of the markets are still languishing.
 

Avoid lumpsum investments

"Indian equity markets have rallied sharply in last 3-4 months to scale fresh all-time high levels. Investors should avoid the temptation of booking profit as outlook remain positive. Lumpsum investment however should be avoided and deployed at any market correction," said Sachin Jain, research analyst at ICICI Securities.

Adopt a balanced strategy

"Given the prevailing bullish sentiment, investors who are already in the market might want to hold onto their current positions while keeping a close eye on market movements, particularly the support levels at around 19,850 and 19,730 zones.

The overall market appears optimistic, supported by a favorable macroeconomic environment, positive global outlook, and revival of numerous small and medium stocks. However, investors should be ready for possible volatility, as higher levels could trigger profit-booking and cause short-term price fluctuations. If Nifty doesn't cross the 20,000 threshold, some investors might opt for profit-taking, leading to momentary dips which could create buying opportunities," said Sonam Srivastava, Founder & CEO at Wright Research.

Time to reduce the tax liability on long and short-term capital gains

 Ajinkya Kulkarni, Co-Founder and CEO, Wint Wealth believes that as Nifty approaches 20,000, the time is ripe to reduce the tax liability on long and short-term capital gains or to book profits for portfolio rebalancing, as per the original allocation. 

However, he cautions that retail investors need to plan it well instead of trying to time the market. For instance, someone selling stocks or equity mutual funds for tax harvesting must immediately reinvest in the same stock/fund to avoid price deviations.

"Many investors also try to delay their future equity investments when the market is in a bull phase. Since it is impossible to predict market movements, this approach can seriously hamper their wealth creation. Instead, they should continue with their SIPs while holding onto any significant lumpsum investments," said Kulkarni.

The current market conditions appear to be more favorable for buy-and-hold traders rather than day traders

"Chasing after a rapid upward movement can be challenging, as it may lead to missed opportunities or increased risk. However, it is important to maintain a bullish perspective as we are currently in a long-term structural bull market. In such a market, every dip or consolidation can be seen as a potential buying opportunity. Investors with a long-term outlook should consider utilizing these moments of temporary price declines to accumulate positions in stocks or other assets they believe in," said Santosh Meena, Head of Research, Swastika Investmart Ltd.

Remain invested and focus on sectors that can benefit from government's capex plans

Despite the market reaching all-time highs, retail participation remains relatively low, with general market sentiment expecting a market correction before  opting for a re-entry. 

"From a technical standpoint, India has broken out of a long-term consolidation phase that initiated in late 2021. Our technical desk predicts that the cup and handle pattern breakout that has happened on Nifty may propel it to 22K levels in the near future.  It's essential for investors to bear in mind that markets tend to anticipate future developments rather than merely reflecting the current scenario, which might appear somewhat pessimistic on the ground,' said Anirudh Garg, Partner and Head of Research at Invasset PMS.

His recommendation to investors is to maintain their investments and carefully consider adding to their portfolios during market declines, focusing strategically on sectors like Defence, Railways, Capital Goods & Ancillaries that can benefit from government Capex plans.

'Key sectors centered around domestic consumption like Autos & FMCG are also expected to experience substantial growth," said Garg.

You could also book part profits

Kedar Kadam, Director - Listed Investments, Waterfield Advisors  believes getting rid of long-stuck positions in the portfolio and moving to quality stocks should be a priority at these levels. 

"So also booking part profit and waiting on the sidelines to re-enter will not be a bad idea. The ongoing earnings season can provide a good yardstick to take these calls. In our view after such a big up move in the past few days, some profit taking is not ruled out. Any such pullbacks in markets should be used to make staggered investments," said Kadam.

Increase exposure to equity if.. 

"For existing investments, if one's equity exposure is higher than the long-term allocation number, you could consider reducing it and bringing it in line.  If your equity exposure is lower than your long-term allocation by less than 10%, it is best to stay put and if additional funds are available, invest in a staggered manner over the next six months, " said  Vivek Banka, Co-Founder, GoalTeller, an automated financial planning platform.

Banka further said that if  equity exposure is lower by more than 10%, it is time to bring the exposure back over the next three months in a staggered manner.