Sensex, Nifty hit record highs! How should investors navigate an expensive market? Expert Insights

Indian markets scaled a fresh all-time high for the sixth consecutive session on Thursday, September 26, driven by positive global sentiment and robust domestic inflows. During today's intra-day trading, the Nifty climbed 84 points to hit a new peak of 26,087, while the Sensex surged 293 points to a record high of 85,462.

Going ahead, market experts expect the Indian market to continue its upwards journey.

"There are no immediate near-term triggers that can take the market sharply up or down. Up moves may attract selling by FIIs who are likely to move some more money to China and Hong Kong since these markets are cheap and are witnessing an uptrend now. But FII selling is unlikely to push the market down significantly since the ample domestic liquidity can easily absorb such selling. A range-bound market is the near-term scenario and, therefore, the real action will be stock-specific," said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

As markets reach new highs, investors face the challenge of positioning their portfolios in an expensive environment. Amid rising valuations and potential volatility, experts weigh in on how best to navigate the current market landscape.

From asset allocation to profit booking and diversification, these strategies can help investors maintain resilience and growth potential.

Diversification

Shweta Rajani, Head of Mutual Funds at Anand Rathi Wealth Limited, emphasises the importance of diversification across market caps. According to Rajani, large-caps have a growth potential of around 11%, while the mid and small-cap space is expected to grow between 18 to 20% in FY 2025. However, she cautions that the mid-cap segment may be experiencing some froth, suggesting investors proceed carefully in that space.

To balance the risks and opportunities, Rajani advises investors to maintain a well-diversified portfolio: 55% in large-cap stocks, 23% in mid-caps, and 22% in small-caps. She also recommends investing through mutual funds to better manage market volatility while capturing growth potential.

Profit Booking and Rebalancing

Vijayakumar of Geojit also pointed out that since there is no valuation comfort in the market now and the mid and small-cap segments are overvalued, investors should give priority to safety and prefer large-caps. Bank Nifty has more potential to move up and there is valuation comfort in this space.

Deepak Jasani, Head of Retail Research at HDFC Securities, stresses the importance of regularly reviewing asset allocation. Jasani advises booking profits in stocks that have run up sharply in the past few months, especially those with inflated valuations in the small and mid-cap space.

Additionally, he suggests reallocating profits towards more stable large-caps or larger mid-cap stocks. By doing so, investors can lock in gains while rebalancing their portfolios in line with their long-term financial goals, he says.

Mohit Khanna, Fund Manager at Purnartha, also makes a case for investing in large-caps, noting that they currently offer better value than mid and small-caps. Despite the broad market rally, Khanna sees bottom-up opportunities, advising investors to focus on companies with superior execution capabilities rather than relying on order-intake news.

Khanna also highlights emerging themes that could play out well in the next few quarters, such as the recovery of rural consumption. He suggests that investors re-align their portfolios to capture these opportunities.

Proceeding with Caution

Atul Parakh, CEO of Bigul, recommends a cautious approach in the current high-valuation market. Parakh advocates for diversification across industries and a focus on equities with strong fundamentals. Maintaining a long-term investment horizon and staying alert to macroeconomic changes are essential strategies for success.

He also emphasises the need for systematic investment plans (SIPs) and frequent profit booking to manage market volatility. Parakh notes that while market milestones such as 100,000 seem attainable, unpredictable global and domestic factors could influence future movements. Remaining vigilant and adjusting strategies accordingly will help investors navigate these uncertainties, says he.

Staying Invested for the Long Term

Aman Soni, Head of Operations at Prudent Equity, believes that investors should focus on maintaining solid equity exposure aligned with their risk appetite rather than being swayed by daily market fluctuations. Soni highlights the expertise of seasoned fund managers, who can reallocate capital effectively across different asset classes.

While timing the market may seem tempting to lock-in profits, Soni advises caution. Without a well-defined strategy for re-entry, timing the market is often easier said than done. Staying invested for the long term, he argues, is a more prudent strategy in the current environment.

Focusing on Fundamentals

Divam Sharma, Founder and Fund Manager at Green Portfolio PMS, observes that while the Nifty's current price-to-earnings (P/E) ratio of 24 is not particularly high compared to historical levels, caution is warranted as the ratio is at a 52-week high. Sharma explains that higher valuations for Indian markets are justifiable due to the country’s developing economy and robust GDP growth compared to developed markets.

However, Sharma advises focusing on stocks with strong fundamentals and well-managed debt, as markets are cyclical. He cautions against chasing stocks that are trending in the news or have seen significant run-ups, as fear of missing out (FOMO) can lead to poor investment decisions and suboptimal returns.

In an expensive market, experts agree on the importance of diversification, profit booking, and maintaining a long-term investment horizon. By focusing on large-cap opportunities, rebalancing portfolios, and staying invested in fundamentally strong companies, investors can position themselves to withstand market volatility while capturing growth potential. Staying alert to macroeconomic developments and adjusting strategies accordingly will be key to navigating this complex market environment.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.