There is no harm in booking some profit so long as market rally continues

Many feel that the rally is on its last legs, and provides an opportunity to stock investors

For investment advisor Arun Kejriwal, the reason is clear for booking profit: “This rally can last a day or seven days or more, but we will see a sharp correction sooner than later. The initial earnings numbers comprise a clutch of companies which were more or less not impacted by the Covid-19 pandemic very badly. The numbers of brick-and-mortar companies will hurt. So, this euphoria in the markets can last only for some more time.”

According to Kejriwal, if there is money to be made during such times, investors should do so now.

The Sensex is already up over 48 per cent since its March 23 intra-day low, and it is just short of its all-time high. That is, the index is just 10.6 per cent short of the closing all-time high of 41,952 points on January 14, 2020, and 11.5 per cent short of the intra-day all-time high of 42,273 points on January 20, 2020.

In just six months, indices have hit a new high, fallen sharply and risen again significantly. And those who entered the market during March might already be sitting on good money. And a lot of stocks would have hit their all-time highs, giving an opportunity for investors to make good profits. In July itself, 16 stocks have hit their all-time highs (see table) in the NSE 200.

“Some high net worth individuals have already been using this opportunity to sell stocks because the continuing rise in the number of Covid-19 cases with little visibility, in terms of flattening the curve or any cure, means that the market will correct in the days to come,” says another fund manager.

 

Investors who have made a lump sum investment in schemes have also seized the opportunity to exit because of the sudden turnaround, say industry players. Many would also want to sit on cash because going forward, there could be good opportunities to enter whenever there is a correction. 

However, experts say there is a worrying trend that a lot of retail investors have moved from mutual funds to stocks, which is reflected in the sharp rise in the number of Demat accounts since April and a fall in the collections of mutual fund schemes. Clearly, with more time in their hands, many have started dabbling in the markets. Many, it seems, are getting into penny stocks — stocks that are priced as low as Rs 1 or even less — to make a quick buck.

“Investors are buying these stocks in bulk, leading to a sharp rise/fall in them. The problem with such deals is that when the going is good, it is easy money but if things go bad, investors might lose entire capital. So, investors are better off avoiding them. And if they have already bought some of these stocks, exit while the going is still good,” adds the fund manager.

As far as mutual fund investments go, stick around if you are putting money through regular systematic investment plans. You can reduce investments if unsure about the market conditions or facing a financial crunch. But such times may actually give good returns if you are able to continue with investments.