Mkts strong: What should be your investment strategy now?

The markets have had a remarkable week, the Nifty has hit 6,000. That’s almost now close to the highs that we have seen, the all time highs. So, that’s a very crucial figure that it has hit.

The markets have been on a bull run, we have seen quite a good run up in stock prices. What really should you be doing at this point of time, if you have already invested or if you are intending to invest?

In an interview with CNBC-TV18’s Vivek Law, Anup Bagchi, ED, ICICI Securities says if one is already sitting on profits, it is a good thing to take some profits out.

He further says if one wants to invest at this point of time, he/she should not invest in a lump-sum manner. “Pick your stock, divide it into four or five or six parts, may be every week you invest and average it out or every day you average it out or every month you average it out.”

Here is a verbatim transcript of the exclusive interview with Anup Bagchi on CNBC-TV18. Also watch the accompanying video.

Q: Increasingly given the manner in which the market has run up, we get calls saying is this the right time for me to invest and of course at the same time you get calls for somebody who is already invested for a fairly long period of time, that is it the right time for me to sell. I know that this is an answer which would depend from stock to stock, sector to sector, but, overall, what is your view of what should a retail investor be doing at this point of time?

A: We also are getting lot of both kind of calls. Two things, the good thing is that most of the retail investors for whatever reason while they have not participated too much in the rally, but they have not got off the trade either. So, people who have had stayed in the market continue to stay invested in the market. For them, a little bit of profit taking could be good because markets are running on three fundamental factors, one is the economy doing well, is the sector doing well, is the company doing well, which is more specific.

Second one is on the valuation. Okay if it is doing well, at what price does it become better or at what price does it become out of reach, which is a valuation factor. And the third factor really would be the momentum factor, which is, is it being driven by liquidity or is it being driven by fundamental and because the valuation is very attractive.

I must confess that I would put 60% weightage right now on momentum, 30% I would put on fundamental factors and only 10% on valuations. Valuations from rich have only become richer. Fundamentally, of course, it is supporting, but large part of this movement and these sharp movements have happened because of gush of liquidity that has flown into the Indian markets, particularly by foreign institutional investors (FIIs). The domestic institutions don’t seem to be buying that much. They do not even have that much of liquidity to buy into the market. So, this is largely a very liquidity driven, momentum driven rally.

So what should one do? If one is already sitting on profits, it is a good thing to take some profits out and put it in debt instruments as well because interest rates are also luckily quite attractive. Good quality fixed maturity plans (FMPs) are coming from the mutual fund. So, they can put in there.

Clients who need to invest or who want to invest at this point of time, one really doesn’t know whether the market is going to go too much up or whether it is going to correct because it has already run up quite a bit. So, what we are suggesting to them is you must be invested in the market, but at this point of time do not invest in a lump- sum manner. That is if you have got a lakh of money to invest, do not go and jump one day and get overly excited and invest all of one lakh in one day. Pick your stock, divide it into four or five or six parts, may be every week you invest and average it out or every day you average it out or every month you average it out. But essentially get into the systematic investment plan not of the mutual fund type, but of the equity type, if you figure out that this is the stock that I need to buy. That way one will be able to average, one will be able to get the benefit of not timing the market or not trying to time the market and a benefit of a slightly long-term investing and getting the benefits of both upside and if there is a correction on downside as well. So, that is a generic thing.

Q: I am a new investor entering the market, would it be a safe bet to start with oil and gas sector?

A: I would tend to agree that when you do your first few investments, up to 70% should be in largecap diversified where you get an overall benefit of the market, 20%- 40%, from time to time you can take sectoral bets. There I would say that it might be a better idea to put part of it, 60%-70% in the largecap diversified funds, so that if the markets tend to move up then you get the benefit of the overall movement of the market.

Coming to oil and gas sector, I think oil and gas sector is a policy bet. We all believe that all these companies, all the PSU companies are very strong, they are very asset rich, they are very well run and this is more of a policy bet and that if reform comes then it will start to do better.

Within oil and gas sector if you have some knowledge and if you have done some reading in oil and gas sector, if you were to pick up a stock, I would still say that GAIL could be the better of the stock because I don’t think you will be able to diversify too much between oil and gas sector. But I would say first 70% of your money, whatever is the money, try and invest it in the large cap diversified. Thirty percent if you want to get a sense of stock market, in oil and gas sector you can invest with the stock that I am just suggesting.

Source: http://www.moneycontrol.com/news/market-outlook/mkts-strong-what-should-be-your-investment-strategy-now_486847.html