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Wednesday, April 12, 2017

Sensex, Nifty on a roll; 5 ways to de-risk your portfolio

Portfolio re-balancing should normally be an ongoing process, a function on one’s target portfolio and asset allocation.

The BSE Sensex recently touched 30,000 after a gap of two years and is hovering close that level ever since. Nifty has recently touched record highs. Amid high stock valuations, there are talks that the stock indices could move to fresh highs in coming months on the back of healthy economic growth and strong investment inflows into equities.

The risks in equities are high at present levels and investors are uncertain about their portfolio mix. Should one take fresh positions in equities or sell partly and rebalance by raising exposure to debt? Should one actively rebalance their portfolio given the market environment?
Personal finance and investment experts believe that investors should avoid any knee-jerk reaction to market levels.

?Portfolio re-balancing should normally be an ongoing process, a function on one?s target portfolio and asset allocation. The target portfolio, of course, depends on individual characteristics like age, risk-appetite, liabilities, social and family situation etc. It is not really supposed to be a function of absolute market levels,? Mihir Vora, Director and Chief Investment Officer, Max Life Insurance told Moneycontrol.

Vora, however, has a word of caution for equity investors despite being optimistic about the long-term picture. ?With equity markets having moved significantly in the past year (up about 18 percent) without a commensurate increase in earnings, valuations do look a bit on the expensive side. Within equities, the mid-and-small cap indices have moved even more. However, the long-term expected returns from equities will continue to remain attractive,? Vora said.

S Sridharan, Head, Financial Planning, Wealth Ladder Investment Advisors, feels that markets may move higher from present levels. ?Price-to-earnings level is already on the higher side. The P/E of Sensex is close to 23 which is not a comfort level. However, domestic inflows coupled with FII inflows and government?s reform measures may push the market upwards from current levels,? Sridharan said.

Keeping the present situation in mind, Vora and Sridharan have the following 5 pieces of advice for investors who are uncertain about their investment portfolio moves:

?    Stick to your target asset allocation and do not chase momentum. ?    Avoid concentrating on a few stocks, especially illiquid stocks. ?    Avoid leveraging your portfolio and avoid over-trading. ?    Do not invest lump-sum in equity at this juncture. Staggered investments though Systematic Investment Pan (SIP) will help in cost-averaging. ?    Avoid small & microcap funds, as valuations are at an all-time high. If you are still interesting in the space. consider investing through SIPs.
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