[PART 1/3]: What has happened & should you book profits now?
On 21st January 2021, Sensex created history by crossing the mighty 50,000 level and reached to its all-time high. Just 9 months ago, the index was hit by the negative effects of COVID-19 crashing down to 25,986 points all the way from the levels of 42,000 and then again rallied up 88%. However, the 50,000 mark was very short-lived and the market lost it momentum on the very same day as soon as the celebration party at the Bombay Stock Exchange began.
One of the most prime reasons why Sensex did not sustain its all-time high was due to the profit bookings that get triggered when such events happen. The Indian markets are witnessing an astronomical bull run by rising 88% in just 9 months. These uncountable and unexpected market movements are called VOLATILITY which is also at its peak in the Indian market, as can be seen in the image below:
The general nature of the Indian financial markets is volatile just like any other emerging economy in the world. However, just like each historic event has its own set of pros and cons; this event also possesses the same of its own.
A reason why the markets have rallied so high is due to the Foreign Institutional Investors (FIIs) inflow of investments into the Indian markets of over ₹62,000 Crore since their tragic COVID-19 induced exit in March 2020. However, Sensex is overvalued today at a PE ratio of 34.02 and a bubble burst is expected to cause a wrath of correction, the beginning of which we can already see happening.
Let’s discuss a 4 step strategy in our 3 Blog Thread to take advantage of the market volatility and safeguard our hard earned money:
STEP 1/4: BOOK YOUR PROFITS NOW & AVOID THE WRATH OF CORRECTION
Stocks: The best favor you can grant yourself is to start booking your profits ASAP because Sensex PE ratio is of 34.02 in January 2021 which is higher than the usual band of 20 to 23 as noticed since 2015-2016. Thus, a market correction in the range of 5% to 10% is expected in the coming months.
Mutual Funds: If your exit load period is over, start cashing out in case of equity funds and replace with investments less exposed to purely equities. You will be much more likely to avoid the wrath of market correction.
Derivatives (F&O): Just stay away from this asset class if your research is not absolutely perfect.
To read about Steps 2/4, 3/4 and 4/4 on where to invest your profits and how to do it, stay connected with this 3 Part Blog Thread.
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