Locking In Gains

How to protect your profits in this stock market.

- Renu Yadav

Stock markets have rallied sharply over the past few months. The S&P BSE Sensex, the broad market indicator, touched an all-time high of 31,311 on June 19, 2017. It has delivered a year-to-date return of 16 per cent (till June 29). The S&P BSE Midcap and the S&P BSE Small cap indices have risen 21 per cent and 27 per cent, respectively, over this period. This means many people will be sitting on decent gains and wondering whether to stay put or cash out. It is not an easy choice. If the market continues to move higher after they book profits, they will find themselves entering at a higher valuation, which will affect their portfolio returns. Or, they may remain invested, but markets may correct. The short point is that timing a market exit and re-entry requires a fair bit of experience and expertise and is, therefore, considered beyond the scope of most retail investors. This is especially true in the current market as experts are upbeat about equity markets over the long term but are not ruling out short-term gyrations due to high valuations, uncertainty over implementation of the goods and services tax and foreign institutional investor flows.

“GST might lead to savings in the cost of doing businesses. Further, GST, as well as demonetisation, will lead to a significant reduction in parallel economy over a period. At the same time, savings are moving from physical to financial assets. All these can lead to far higher growth over a long period. But from a shorter term perspective, the valuation looks high. However, as they say, markets can remain irrational for more time than you can remain solvent,” says Abhishek Anand, Fund Manager at Centrum Broking.