Should you invest in shares at these levels?
Tread cautiously, advise experts
The street is as if on fire. Bullish foreign investors have been pumping money into local equities. But the retail investor isn't convinced he should be in this market.
Indeed, retail investors have been net sellers in the stock market even this month, having sold equities worth `4,500 crore on the two leading exchanges even as foreign institutional investor flows crossed the `10,000 crore mark in the month till date.
"Retail investors seem to be still cautiously optimistic. This unexpected rally has taken people by surprise and there has been no major uptick in retail volumes," said Prasanth Prabhakaran, president - retail broking at IIFL.
"Retail activity normally picks up when the momentum catches up either way. Though retail participation has been better in the last few weeks, there is no major participation from new clients. Existing investors seem to be churning their portfolio at these levels," said Dinesh Thakkar, CMD, Angel Broking.
The Sensex gained a further 155.15 points to close above 19500 on Wednesday, on the back of sustained FII flows, closing in positive territory for the seventh day in a row.
Experts believe the markets would continue to see positive momentum in the coming days on the back of strong liquidity.
"Nifty's move above 5650 has been sustained for consecutive 2-3 days with high volumes, pointing to clear-cut bullish breakout. FIIs are still buying at these levels as they do not foresee any major negative event. A correction, if it happens, may not be significant," said D D Sharma, senior vice-president - research at Anand Rathi Financial Services.
However, experts caution retail investors against making fresh investments at this point of time.
"Getting in at these levels is risky as the short-term upside seems to be limited and there may be correction once all the shorts get covered and valuations become unattractive for further FII flows. Any decent correction to 5500-5600 levels would result in retail participation," said Prabhakaran.
"The FII flows seem to be fine, but at the same time, our markets may need to correct/ consolidate for some time before embarking on the next upmove. Markets are looking top heavy and retail investors, who have not invested so far, should stay out. It's easy to get carried away during these times, but quite often the retail investors end up repenting,"said Deepak Jasani, head - retail research at HDFC Securities.
How then should the retail investor approach the markets?
Experts say investing in good growth stocks on a regular basis, whether directly or indirectly, is the ideal way.
"We continue to prefer mid-caps as they offer higher return opportunities over a longer horizon. As they are riskier than large-caps, one should buy in baskets and not take large exposure on a single stock. However, for new investors, it's better to come through the mutual fund route," said Sharma.
"Despite valuations being rich, markets are moving on strong liquidity and retail investors may not get a good bargain at these levels. It's very difficult to see markets giving large meaningful correction in the short term. Therefore, it's important for retail to identify select good growth stocks and invest in them regularly during good and bad times alike," said Thakkar. But even in regular investing, one needs to book partial profits at highs so as to take make decent
returns.
"Though investing through SIP is a good route, the returns wouldn't be attractive unless one exits fully or partly after sharp rises," said Jasani.
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