Your Money: Time to book profits, invest again when market corrects

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© Provided by The Financial Express In February-March 2020, Nifty bottomed at 7,600 points and in just 10 months it is currently pegging at 15,000 points which is exactly double.

By Ashima Aggarwal

The world is changing and the new era is all about 30-minute-delivery pizzas and 2-minute noodles. The philosophy is not very different for current investment strategies also. We have seen in the recent past that many of the initial public offers (IPOs) have never touched the opening price; some prominent examples are that of Ujjiwan Small Finance Bank, General Insurance Company Ltd, New India Assurance, etc. This clearly shows that it is all about being more vigilant and being ready to hit the market at the right time. The old saying on investing for the long term and reaping benefits in future still holds true but only in certain scenarios.

Tax implications

Earlier investors believed that if the investment is held for the long term then there will be no tax implications when it is sol-there was no long-term capital gains tax (LTCG)-and the dividends were also tax free in the hands of the shareholders. But recent tax laws have changed this with a tax burden on investors. The difference between tax on LTCG and short-term capital gains (STCG) is only 5% now.

Fluctuating bond yield

With the changing stock market scenario in response to the economic fluctuations, market sentiments and current Covid pandemic conditions; the bond yield is also fluctuating heavily. In the early part of 2020, everybody was moving towards bonds (to gain stability in the investments) as the stock market was falling. But by the end of 2020 we have a boom in the stock market and investors are again moving from bonds to stock markets (as bond and stock markets are inversely proportional to each other).

Rising stock markets

In February-March 2020, Nifty bottomed at 7,600 points and in just 10 months it is currently pegging at 15,000 points which is exactly double. Most of the stocks are trading at their life-time high and it is time to reap the benefits of the same. Investors should keep ample liquidity in hand to invest again in near future at the first opportunity (when the market corrects) and the investment should be more stock specific rather than industry/ sector specific. Investors should invest in best stocks by studying historical price-earnings (P/E), management outlook, future prospects of industry, dividend yield and book value of stock. This can prevent the investor from getting trapped in this highly volatile and fluctuating market.

Also, it has been observed that although the average annual returns on most long term stocks lies between 15-25% (which is good), if we go into the finer details we will see there were many periods where the yield was negative, so it would have been better if the investor withdrew his money and invested elsewhere by constantly reviewing the portfolio/market/ stock vigilantly. He could have achieved a yield of more than 25% also by doing so.

The writer is assistant professor, Amity Business School, Noida