How to plan your equity investments amidst market record high

While Covid-19 has negatively impacted industries like banking and hospitality, pharma and IT industries have been beneficiaries. But is this a good time to invest in equity?

Updated: Nov 12, 2020 02:28:35 PM UTC
Image: Shutterstock

Sensex and Nifty have hit record highs in recent days. The overall sentiment on the street is positive amid the news of Pfizer's coronavirus vaccine showing serious promise. Thanks to these factors, the global markets are seeing a high, especially after the crash of March 2020.

What is driving the market?

A host of factors like improved earnings, liquidity, and expectation of a faster economic turnaround, along with Joe Biden's election win.

Is this a broad-based rally?

No, it is not. The market rally has been very sector-specific right from January 2020.

The IT industry or pharma sectors are doing better than real estate, banking or finance sectors. The impact of Covid-19 on sectors including IT, pharma, telecom or FMCG has been different, as compared to the banking or hospitality industries. In contrast, the pharma and IT industries have been beneficiaries.

What is the impact of the US election result on the market?

People are eying the next US stimulus package because of the impending change in leadership, and hoping for the dollar to stay weak. This change will inject more money in the emerging economies of the world.

So, can this momentum continue for a broad-based rally?

Key economic indicators are showing positive signs. A possible GDP turnaround may result in a broad-based rally, where other sectors would also participate. We have seen a dismal performance in the last two quarters, but India is recovering fast, and we can expect decent growth going forward. This growth could be disturbed in case the second wave of coronavirus cases hits us, similar to what is happening in some European countries where they have announced lockdowns once again.

Should you invest in equity now?

As mentioned above, the market rally may continue for some more time due to the liquidity and euphoria around. However, the valuations are very high and inflated, and the market has already factored in a speedy recovery. Every bad news is taken as good news, and good news is taken as great news. That is why it could take a tumble, and you need to be careful in terms of your equity investments, be it direct stock investing or via Mutual Fund schemes.

I would suggest focusing on a strict asset allocation and rebalancing your equity portfolio if needed. Always remember that as a retail investor, you do not need to do something every time the market goes up or down. Timing of the market is a futile exercise in achieving your long-term financial goals. You are your own stock. Change your allocation only if it is needed to rebalance your portfolio and to achieve your financial goals. Avoid the noise and the news around and do not make any hasty decisions. Sitting on cash is also a position, so continue your SIPs and invest only gradually and not at one go.

The writer is a chartered accountant and founder and chief gardener of Money Plant Consultancy

The thoughts and opinions shared here are of the author.

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