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Share Market at Record High, But my Portfolio is not! Why?

CA Umesh Sharma , Last updated: 09 July 2024  
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Arjuna (Fictional Character): Krishna, the Sensex has touched a record high of 80,000 this past week. While this seems like a remarkable achievement, many investors are worried as their portfolios are not reflecting these all-time highs ? Why such ?

Krishna (Fictional Character): Arjuna, the Sensex reaching 80,000 is indeed a significant milestone. This showcases that people are believing India's strong growth story. However, the portfolios of many investors are not at their all-time highs because this recent rally has been driven primarily by large-cap stocks. These large-cap stocks had not participated in earlier market rallies and were not a part of portfolio of many retail investors, while other sectors such as PSU Sector, Reality Sector, which were once the darlings of the market, did not see the same level of participation this time.

Arjuna (Fictional Character): Krishna, Aquestion comes up on whether to buy when markets are at all time high ?

Krishna (Fictional Character): Arjuna, One should not rush to buy stocks when the market is at an all-time high. It's wise to wait for a dip and buy stocks during these dips. A practical strategy would be to buy stocks on every 5-10% dip and hold them patiently to see substantial returns.

 

Arjuna (Fictional Character): Krishna, How can we predict when the market will correct (fall)?

Krishna (Fictional Character): Arjuna, The key indicator to watch is the positions of Foreign Institutional Investors (FIIs) in indexes like Nifty and Bank Nifty. If FIIs are holding record long positions, it signals caution. Currently, FIIs have 84% net long (tezi) positions, which indicates limited upside potential and a higher risk of downside. It's important to understand that any position can be hold only upto 85-88% positions in the market. When they are 85% long(tezi), only 1-3% long(tezi) more positions can be added, meaning the possibility for upside is restricted and the downside is open. Conversely, when FIIs are net short (mandi), the market often experiences significant upward swings, as there is limited downside risk and ample room for upward movement.

For example, on 3rd June, when the exit poll results were announced, FIIs were at a record short position. Although the market fell on 4th June, today we are at all-time highs. This behaviour illustrates the inverse relationship between FII positions and market movements and should be kept in mind by investors.

 

Arjuna (Fictional Character):Krishna, In case of a market correction, should one sell their entire portfolio and wait for the correction?

Krishna (Fictional Character): Arjuna,Selling off an entire portfolio is one option, but a smarter approach is to hedge your portfolio using put options. A put option is a tool to protect long positions. When the stock price falls, the value of the put option rises, offsetting losses. However, executing this strategy requires skill and experience.

 

Arjuna (Fictional Character): Krishna, What should investors learn from this?

Krishna (Fictional Character): Arjuna, Emotions often drive investment decisions. Instead, focus on India's growth story and invest in companies, not just stock prices. Let your investments compound over time.

Remember these two most important data points:

1. Historically, every 10 years, Nifty has become the Sensex. In 2004, Nifty was at 2,000 and Sensex was6,500. In 2014, Nifty became 6,500 and Sensex was at 22000. In 2024, Nifty became 22,000 when Sensex was 72,000 and at Currently Nifty is at 24,000 and Sensex is at 80,000. So one can connect the dots.

2. Investors who have held stocks for more than 7 years have not lost a single rupee of their investment in the stock market since its inception.

Invest wisely and let patience be your guide.

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Published by

CA Umesh Sharma
(Partner)
Category Shares & Stock   Report

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