CHAPTER 3 : Course of Action When Market is at 'Record High'

On 27th Sept 2021, BSE SENSEX Index recorded its lifetime high level of 60,412. The Journey from day’s Low of 25,638 on 24 March 2020 (Lockdown impact) to record high has been extraordinarily fast and unidirectional. Most of the investors are now experiencing the dilemma, “What to do now?”, "shall I invest more as the market is going up?" If yes, then in which category? Or should I book the profits I have made?

The market has its own way of moving up or down, let’s not get in the territory of how rational or irrational it behaves. Be it, Fund Managers or well-informed investors, no one can anticipate the exact market movement and its level in near future. To a certain extent, one might get an idea of the future trend based on various financial ratios and history of events.

Let’s focus back on the million-dollar question, “what to do in a current market scenario?”. The answer to this question lies in the correct actions taken while building the portfolio. Every investment made, be it in the Debt market or in the Equity market, has been made considering a certain goal in mind. Creating a portfolio based on market movements and ignoring investors' requirements is bound to create chaos and it will be a foundation of disastrous results. So, before we evaluate the options at record high levels, we shall consider the hypothesis that ‘all the previous investments were executed with proper goal planning, rational decisions and realistic assumptions.’

It is a no-brainer that there are only two options one can opt for in the current market scenario.

1.    Enjoy notional gains, remain calm and composed (Strategic)

2.    Rebalance the portfolio by booking profit (Tactical)

Now the next question is when to exercise which option. On the basis of the hypothesis or assumption we have made above, an investor is expected not to fiddle with the existing portfolio or carry out new investments just on the basis of free TIPS or paid promotional articles on WhatsApp or online news or paid coverage in Business papers. Investment is always to be carried out combining following factors. 

A.      Prevailing market valuations to select fund category.

B.      Availability of investible surplus with an investor.

C.      Realistic Goal with sufficient time frame. 

    Investors should exercise the first option when their goal has more than three years to reach. Relax and enjoy notional gains but at the same time if there is a sudden trend reversal, do not get in panic mode and sell everything. This is more of a Strategic investment style. We might see multiple trends in the next three years. There is no point in disturbing the whole portfolio unnecessarily.

    The second option which is ‘Booking profit and rebalancing the portfolio’ is more of a Tactical Strategy. The crux of this strategy is tactically taking advantage of market movements to make gains and quickly realigning the portfolio to its original composition. Investors who are nearing their investment goals say in the next one or two years, can book profit and park their gains either in a bank account or park in debt funds with lower volatility and high liquidity. Also, if the gains in an investor’s portfolio are exorbitantly high, say more than 20-25% they can exercise the second option (Tactical allocation strategy). This will be done by booking partial profits in order to realign the portfolio and maintain the Debt-Equity composition in favor of the risk-reward ratio of an Investor.

    There is no fixed formula or uniform approach towards investment management. Every single decision has to be taken considering the risk-reward appetite and financial goals of an investor. It is prudent to seek advice from professionals in order to gain insight on macro-economic indicators and other domestic and global indicators. At any point, irrational market movements should not affect the stability of the portfolio. 


Note - The Content is for informational / study purposes only. 

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