The market is picking the pace and it is the right time for investors to shuffle their portfolio, suggest experts.
The Sensex completed its journey from 36,000 to 37,000 in 126 sessions. It breached 36,000 in trade for the first time on January 23 this year, but momentum fizzled out after the index hit a record high of 36,443.
The index regained momentum in the last two months and hit a fresh record high of 37,026.18 on Thursday. It has risen by around 3 percent over the last 6 months, but as many as 13 stocks in the BSE 500 index and the BSE Smallcap index returned over 50 percent each in that period.
The BSE 500 stocks that outperformed the Sensex include Indiabulls Ventures, Firstsource Solutions, Bajaj Finance, NIIT Technologies, and L&T Infotech.
In the BSE Smallcap index, stocks that outperformed the Sensex include Nelco, Excel Industries, Seamec, Merck, and Cigniti Technologies.
The Nifty too broke out from a narrow range on Thursday and hit a fresh record high of 11,179 after 123 trading sessions. The index is up by around 6 percent so far this year.
The Indian market is in a structural bull run but the divergence in individual stock performance dented sentiments. Global, as well as domestic headwinds, capped upside for markets post-February.
The pain was clearly visible in the overvalued small and midcaps and given the fact that investors went overweight on small & midcaps in the year 2017 their portfolio are still in red, suggest experts.
“There has been a huge divergence in the index and individual stock performance over the past 6 months because of few index stocks holding up the index levels whereas broader market has seen profit-taking,” Anirudha Taparia, Executive Director, IIFL Investment Managers told Moneycontrol.
“The pain is more severe in overvalued midcaps and smallcaps which has seen the sharpest corrections. Unfortunately, most investors’ portfolio over the past 1 year has become overweight on midcaps and smallcaps and even microcaps. Hence, most investors are not happy even though the index is at record highs,” he said.
What should investors do now?
The market is picking the pace and it is the right time for investors to shuffle their portfolio, suggest experts. Quality will have to take precedence over quantity in 2018 because many stocks in the small & midcaps rallied without any material change in fundamentals, they say.
“Our strategy is to invest in high-quality companies that are able to grow strongly. Given that the growth outlook of the country is getting stronger and this would permit our focus list of high-quality businesses to also grow in a stronger manner, we are feeling confident into investing,” Prateek Agrawal, Business Head, and CIO of ASK Investment Managers told Moneycontrol.
“Investors in equity should always be long-term. At the current juncture, we believe that businesses focused on domestic markets which would be prime beneficiaries of reforms should do well. We are particularly focussed on consumption and financial sectors in the high-quality space. Autos, consumer durables, FMCG spaces would all benefit from the continued resurgence in Rural India and also from the trend towards premiumisation,” he said.
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