Markets At All-Time High, What Should Be Your Investment Strategy in 2024?

In last few months, Markets have grown very fast and with that every Indian Investor is happy looking at Portfolio Returns. At the same time every Investor has few questions in his mind. The top most questions are: Is Market Overvalued? Shall we book some Profits? Where to invest further? So here I will try to answer all those questions for the benefit of Investors at large.

Let us discuss one by one all these questions:

Is Market Overvalued? 

To answer this question, let us check some data points with Nifty 50 index.  The first table below is showing us that on 31/01/2020 (pre-covid) Nifty 50 was at 11962 which is now at 21731, so it has gone up by almost 81% but at the same time Earnings (profitability) of the nifty companies have gone up from 452 per share to 937 per share which is 107% and PE ratio of Nifty 50 has gone down from 26.41 to 23.17 which is lower by 12% so it is very clear that even though Nifty 50 was 11962 on Jan-2020 and it is 21731 now but valuation wise is relatively cheaper now. 

The average Price to Earnings ratio of Nifty 50 for last 10 years is 24.64. And current price to Earnings Ratio is 23.17. This also shows that Nifty 50 is not overvalued. But at the same time, one should also understand we are not undervalued, so be careful while investing.

Shall We book Profit Now or Wait?

The answer is you should follow your Asset Allocation. If you are maintaining 70% in your portfolio and Equity Allocation has gone up significantly (reached to 80%) then you can switch from Equity to Debt to bring it back to 70%. So, if your Equity Allocation in percentage has gone up significantly you should rebalance your portfolio and this will take care of profit booking but if your Equity Allocation has not gone up significantly then no activity is required. 

Here, I would also like to tell you that if your Equity Allocation has gone up sharply then you can also reduce it by investing new funds in other asset class (debt or gold) this will help to reduce equity allocation without active Rebalancing.

If you have large exposure in direct stocks, then kindly review valuation of every stock and then take the decision at stock level. Similarly, if you have large allocation in Mid & Small Cap then you should move some funds to Large Cap as Mid & Small Cap has given more than 40% returns in last one year.

Where Should We Invest Further?

The answer to this question is very simple while investing new fund you should first look at your Asset Allocation if your current Equity Allocation is more than where it should be then you should invest fresh funds in Debt so that your equity allocation is back to defined limit. Suppose your total investment value is 1 Crore and you have been maintaining 70% & 30% debt but due to recent market rally your equity allocation is 75% so out of 1 Crore you are at 75L Equity and 25L Debt. Now you have fresh fund of 10 lakhs to invest then total fund after investment will become 1.1 Crore. Then you should have 77 lakhs (70% of 1.1 Crore) in Equity & 33 lakhs in Debt post investment of new funds. So, out of new funds of 10 Lakhs you should invest 2 lakhs only in Equity because it is already at 75 L. 

So post new investment you should maintain your equity allocation in same proportion. 

While investing any new funds to equity, I suggest to avoid aggressive allocation to Mid & Small Cap mutual funds and stocks as that had a run up of more than 40% in last one year.

 With this I would like to wish all the readers Happy Investing in 2024.