When the Securities Exchange Board of India (Sebi) decided to clamp down on participatory notes, it was a clear signal that it was uncomfortable with the speed at which things were moving in the markets. And it was a view endorsed by the finance ministry as well.
Surprisingly most of the market players are quite comfortable with this correction. As Hemant Rustagi, director, Wiseinvest Advisors admits, "The market badly needed to let off some steam." There are expectations that the market could fall by another 4 to 5 per cent or a little bit more. But this correction will not exactly concern too many ulcers to the market players.
From an investor's point of view, there is that usual confusion. The existing ones would like to know should they book profits now? Adds Shankar Sharma, director, First Global, "Instead of raising cash, this is the time to deploy more cash into this market."
This is because good stocks would be cheaper now. "There is nothing to worry as fundamentally nothing has changed," adds Rustagi. He believes it is a good time for existing players as they can churn their portfolio. He suggests buying in small quantities.
As far as stocks go, experts suggest that this is a ripe time to purchase large-cap stocks. "Any upside to the market will now by driven by large caps," feels Rustagi. Accordingly he says that the ones who have been present in a lot of mid-cap stocks should realign themselves to large-cap stocks. Agrees Sharma, "This is a great time to purchase large-cap stocks and if the prices fall by another 5 to 10 per cent, buy more."
For the mutual fund investor, the advice is very clear. This could be a good time to exit from mid-cap funds to predominantly large-cap funds. Also, if you are not sure about the quality of fund that you are invested in, this could be a good time to shift your money to good quality funds.
Of course, it could be completely dependent on the asset allocation. But ideally, if you have exceeded 30 per cent of your mutual fund portfolio in mid-cap funds, realign the asset allocation towards large-cap funds.
For the new investor, it is a bizarre situation. Should they enter now or wait for further correction? Last week's events are in no way any indicator to what could be happening next. Market analysts say that the Sensex movement from 16,000 points to 19,000 points has been a completely unexpected upside for the Sensex which was completely driven by liquidity released due to an unexpected 50 basis point rate cut by the US Federal Reserve chief Ben Bernanke. As Gaurav Mashruwala, financial planner puts it, "Do not go by last week's events. Wait for some more time before you take a view on both buying or selling." However, he also feels that if you want to enter now, take a call of at least five to seven years and allocate resources depending upon your financial goals.
However, for the ones who have been riding the Sensex boom, Mashruwala thinks that it could be a good time to sell off some holdings to clear outstanding loans. This would reduce the pressure of high interest cost and also free up more money for fresh investment and expenditure as well.
In other words, this correction offers a large number of opportunities for the individual. You could invest if you have missed the earlier rally, you could churn your portfolio to move towards better quality stocks or funds and you could even clear your loans by some profit booking. All this is great news.
Points to ponder
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Further correction is expected in the next week
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Ext upside is likely to come from large cap stocks
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Shift from high mid cap exposure to large cap
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Generate cash by offloading some holdings and retire high interest loans
