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Investment tips as Sensex tops 80,000

The benchmark BSE Sensex scaled 80,000 on Wednesday and calls for a change in investment strategy. This is a clear signal for equity investors to rebalance their portfolios towards new winners and weed out the potential laggards. Here’s how to go about it

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Karan Deo Sharma
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Investment tips as Sensex tops 80,000

Investment tips as Sensex tops 80,000

June 2024 has been one of the best months for Indian equity markets in many years. The benchmark BSE Sensex was up 6.9 percent while the Nifty 50 gained 6.6 percent during the month. The rally was broad-based and the BSE Mid-cap index rallied 7.7 percent last month while the BSE Small cap closed with gains of 10.3 percent in June. 

With this, the Sensex is up 10.7 percent since the start of 2024 and has made history by scaling the 80,000 level for the first time.

A sharp jump in the Indian equity markets after the election and exit poll jitters suggest that the rally is here to stay and signal long-term investors to remain invested.

However, the relative movement in the various market segments also suggests that the new phase of sector rotation has started and will create new winners and laggards over the next few quarters. For example, the private sector banks have begun to rally again after nearly two years of relative underperformance. Similarly, FMCG companies logged gains last month after being flat in the first five months of the current calendar year. 

The Nifty Bank was up 6.9 percent during June 2024 compared to a 1.4 percent rise in the first five months of the 2024 calendar year. Nifty FMCG on the other hand was up 4.9 percent last month, a sharp turnaround from a 5.1 percent decline in the index during January to May this year. 

Nifty IT Index too was the top performer and rallied 11.6 percent during June compared to an 8.8 percent decline in the first five months of the current calendar year.

In contrast, the high-beta public sector banks and government-owned companies leading the rally till May this year turned laggards and hardly made any gains last month. This is a clear signal for equity investors to rebalance their portfolios towards new winners and weed out the potential laggards.

Here’s how you should go about rebalancing your portfolio right now:

1. Raise exposure to defensive and underperforming stocks

The sector rotation in the market now favours sectors such as private sector retail banks, FMCG stocks and IT exporters. Investors can play this theme either by investing in top stocks in these sectors such as HDFC Bank, Kotak Mahindra Bank, IndusInd Bank, Hindustan Unilever, ITC, Asian Paints, TCS and Infosys among others or they can invest in top sectoral mutual funds in these sectors. 

Most of the sectoral funds that invest in these sectors have underperformed in the last one-year and it’s a good time to invest in them.

Also Read: Five ways to generate regular income after retirement

2. Tilt your equity portfolio towards large-cap stocks

Mid and small-cap stocks continue to do well but their outperformance over the large cap is diminishing. This coupled with a higher valuation in mid and small-cap and a greater volatility in the share price makes them less attractive to large-cap stocks at current levels. 

Investors can book partial profits in their mid and small-cap stocks and mutual funds and use the proceeds to invest in large-cap stocks and mutual funds.

Also Read: Large-cap stocks likely to outperform mid and small-caps

3. Stay invested in gold and silver

Precious metals such as gold and silver have done well this year and delivered double-digit returns in the rupee and US dollar. 

The precious metals are currently in the consolidation phase preparing the ground for the next up move, which will come once the US Federal Reserve gives clear guidance about its rate cut trajectory. 

The rally in precious metals also hinges on the outcome of the US Presidential election later this year. Besides, gold is a perfect hedge against rupee depreciation and its corrosive effect on rupee assets and our purchasing power. So, the current stability in gold and silver prices is a window to accumulate them.

Happy Investing!

(Disclaimer: This article is for information purposes only. Readers are advised to consult a certified financial advisor before making an investment in any of the funds or securities mentioned above.)

(Karan Deo Sharma is a Mumbai-based finance and equity markets specialist).

Also Read: Five asset classes to protect your portfolio

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