Time to book profits, protect equity market gains

Bring allocations back to original levels in segments of portfolio that have become bloated

- SANJAY KUMAR SINGH

With the Sensex closing above 80,000 on July 4, retail investors' mood is buoyant, even euphoric. Experts say there is a need to tread with caution in such an environment.

Several positive drivers are supporting this rally."Curr ently, the Nifty or the Sensex looks slightly at a premium compared to historical standards. But that is supported by good macros (sound GDP growth, government sticking to fiscal discipline) and the expectation of a decent monsoon. Both domestic consumption and capex- including the Make in India story across sectors like railways, defence and heavy engineering - are doing well," says Sonam Udasi, fund manager, Tata Mutual Fund. According to him, the current re-rating is also supported by well-rounded earnings contributions from various sectors.

Key risk: If earnings disappoint

Earnings in mid and small caps, hit hard by Covid, have bounced back from a low base. Cyclical sectors like capital goods and defence now enjoy premium valuations once reserved for the consumer space because of a significant turnaround in earnings.

"However, to assume that this level of earnings growth will continue indefinitely and pricing stocks accordingly is a mistake. There could be disappointment if projected earnings do not materialise," says Vidya Bala, co-founder, PrimeInvestor.