Explained: With markets at record high, should investors book profits?
The Indian Express
December 09, 2020
Sandeep Singh
Stock market: Investors who need some money and have to meet one of their financial goals of buying a home, car or funding higher education of kids can go for some profit booking at this time as the markets are on a high.
The benchmark Sensex at the Bombay Stock Exchange closed above the 46,000 mark for the first time on Wednesday. Over the last one month, since it closed above the 42,000 mark on November 9, the Sensex has breached five milestones. Having risen by over 4,200 points or 10 per cent over the last one month while there is a sense of relief among existing investors as their investments have turned good, there are growing concerns among many over the high valuations and is leading them to book profits.
What is fuelling the market?
Over the last couple of months the markets have risen on various factors starting from signs of economic recovery in September and October, US election outcome, announcement of successful trials of vaccine by four manufacturers and a sharp rebound in GDP growth numbers for the second quarter among others.
The huge liquidity in the global markets has also helped the rally in the Indian indices as the FPIs have been big contributors to this rally. While the FPIs pumped in a net of Rs 60,358 crore into Indian equities in November, they have invested another Rs 23,094 crore in the six trading sessions of December. In the current financial year, the FPIs have invested a record of Rs 179,369 crore.
While the existing investors are benefitting from the continuing rise in the markets, there are also some concerns among investors on account of the big surge and high valuations. This has led several investors to go for profit booking. In November, equity mutual funds witnessed their highest ever net monthly outflow of Rs 12,917 crore on account of rise in redemptions. Market participants say investors are going for profit booking as the markets are at all time high levels.
In fact, the redemption pressure by domestic investors has resulted into big outflow by domestic institutional investors and they have pulled out a net of Rs 59,837 crore between November and December (till date).
Investors who need some money and have to meet one of their financial goals of buying a home, car or funding higher education of kids can go for some profit booking at this time as the markets are on a high. Those nearing retirement in a year or two can also look to book some profit and put the money in safe debt instruments. It is not advisable to book profits if you have no reason because one has to be clear about where to re-invest that money. As of now equities seem to be a decent place as other investment options including debt and real estate do not seem too attractive.
As for fresh investors, it is advisable not to go for lumpsum investment at current levels, however, investors can go for monthly SIP investments through mutual funds.
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