Should investors book profits by using rebound in stocks?
The Nifty50 index has rebounded 40% from its 23rd March lows. Yet, it is still 12% below its January highs, but of this has happened without any movement in the real economy. Financial experts have kept the rebound down to central bank liquidity rather than fundamentals.
“There is absolutely a case for tactical rebalancing. It is across the board, not just in a few large stocks. The extent of it will vary from investor to investor based on his or her circumstances, but many people entered the covid-19 correction overweight on equities. In my view, things will get worse before they get better,” said Shyam Sekhar, founder and chief ideator, iThought Advisory.
However, other financial planners took a more cautious approach to rebalancing. “Valuations look stretched but you should not get in the way of momentum. In any case, debt has extremely low yields and doesn’t present an attractive alternative,” said Nithin Sasikumar, co-founder, Investography.
If goals are nearer: Clients whose goals are closer can move into debt, said experts.“I’m reducing equity for clients whose goals are close by or who are facing uncertainty in their personal lives, but not for others. Moving out of equity now is basically betting against the central banks, and I certainly wouldn’t want to do that,” said Sasikumar.
If market moves have altered the goals: “In case of some goals, market movements can actually make them cheaper— such as home buying. In one client’s case, the price of a house he wanted to buy in Mumbai dropped sharply post the lockdown. So we did move his money out of equities for this purchase, as a tactical call,” said Prateek Pant, co-founder and head products and solutions, Sanctum Wealth Management.