On September 26, 2024, the Indian stock market once again set new records, with the Sensex and Nifty 50 indexes soaring to unprecedented levels. The Sensex hit 85,462.62, while the Nifty 50 surged to 26,087.80 during the trading session. This impressive growth has fueled excitement and optimism among retail investors, driven by India’s strong economic fundamentals and global market sentiment.
The bull run that began last year has continued to gain momentum, particularly after the US Federal Reserve announced a 50-basis point rate cut, signaling the possibility of further cuts through 2026. Stocks such as Bajaj Auto, Hero MotoCorp, Bharti Airtel, and Mahindra & Mahindra have rallied between 90-150% in the last year, contributing to this upward trend.
However, the current highs have prompted a key question for mutual fund investors: Is now the time to tweak your investment strategy? With concerns about overvaluation, global uncertainties, and the possibility of market corrections, financial experts are weighing in on the best course of action.
Valuations Are High, But So Are Concerns
Despite the market’s consistent gains, concerns about stretched valuations are growing. The price-to-earnings (PE) ratio for the Nifty 50 now stands at 25.6, significantly above its one-year forward PE of 21.4. Similarly, the price-to-book (PB) ratio is at 4.2, compared to its one-year forward PB of 3.35.
These elevated valuations have some experts warning that the market may be overbought, with India Inc. reporting unimpressive quarterly earnings in some sectors. While India’s economy remains resilient, there are still challenges on the horizon, including sticky inflation, geopolitical tensions, and signs of global economic weakness in key regions like China, the Eurozone, and the United States.
Global Economic Uncertainties Loom Large
Beyond domestic concerns, global factors also pose risks to the market’s current trajectory. A potential global economic slowdown, fueled by uncertainties surrounding the US presidential election and ongoing geopolitical conflicts, could derail the positive sentiment in the Indian stock market.
Additionally, with rising oil prices and inflation affecting major economies, experts are cautious about how the Indian market will respond to potential international economic shocks. In this context, many investors are questioning whether it’s time to reconsider their exposure to equities through mutual funds.
Should You Tweak Your Mutual Fund Strategy?
Given the current highs, many investors may be wondering whether it’s time to book profits and adjust their portfolios. According to Sandeep Bagla, CEO of TRUST Mutual Fund, long-term investors should remain calm and stay invested, particularly in Systematic Investment Plans (SIPs). Bagla notes that India’s long-term growth story remains strong, and the economic outlook for the coming years is favorable.
S&P Global expects the Indian economy to become the world’s third-largest by 2030-31, while the Asian Development Bank (ADB) projects growth rates of 7% in FY25 and 7.2% in FY26. These projections suggest that India will continue to attract foreign capital, bolstering market performance over the long term.
Bagla advises retail investors to continue investing through SIPs, extending their investment horizons to mitigate market volatility. While concerns about market valuations are valid, staying invested allows investors to capitalize on India’s economic growth in the years ahead.
Expert Opinions: What the Pros Are Saying
Experts across the financial spectrum have weighed in on how investors should approach the market’s record highs. Here’s what some of the top professionals recommend:
- Sandeep Bagla, CEO, TRUST Mutual Fund:
Bagla suggests that while small-cap funds present an attractive opportunity, investors should also consider large-cap and mid-cap funds. Small-cap funds offer high growth potential, especially in sectors with promising earnings growth. Meanwhile, large-cap funds provide stability, particularly as earnings and valuations moderate. - S Naren, Executive Director and CIO, ICICI Prudential AMC:
Naren recommends a cautious approach through asset allocation. He advises diversifying investments across asset classes, including equities, debt, commodities, and cash, to manage risks associated with market overvaluation. This strategy allows investors to hedge against potential corrections while maintaining exposure to high-growth opportunities. - Rahul Singh, CIO-Equities, Tata Asset Management:
Singh suggests a 40% allocation to hybrid funds like Balanced Advantage Funds (BAF), multi-asset funds, and equity savings. He also recommends allocating 30-40% to diversified equity funds with a focus on large-cap stocks, while reserving 20-30% for thematic and small-cap funds. Singh sees particular potential in the pharma/healthcare and banking sectors, which could offer alpha due to earnings momentum and attractive valuations.
Where Should You Invest Next?
Given the record highs in the market, experts recommend a balanced approach to investment, with careful consideration of sector performance, fund types, and risk tolerance. Here’s a breakdown of some suggested strategies:
- Small-Cap Funds:
With the potential for high growth, small-cap funds remain attractive to those seeking exposure to emerging companies with strong earnings prospects. These funds can provide significant returns but carry higher volatility, making them better suited for investors with a longer time horizon. - Large-Cap Funds:
These funds offer more stability amid market volatility, with moderate earning growth and valuations. Large-cap funds tend to perform well in market corrections and are less susceptible to dramatic price swings, making them a good choice for risk-averse investors. - Hybrid and Multi-Asset Funds:
Diversifying into balanced advantage funds, multi-asset funds, and equity savings can help investors spread risk while maintaining exposure to both equity and debt markets. These funds provide a buffer against market downturns and ensure portfolio stability. - Sector-Specific Investments:
Pharma, healthcare, and banking sectors are likely to see increased interest due to earnings growth and reasonable valuations. With India’s growing demand for healthcare and the strength of its banking industry, these sectors are expected to outperform in the near to medium term.
The Role of SIPs in Managing Volatility
One of the key takeaways from expert recommendations is the importance of Systematic Investment Plans (SIPs). SIPs allow investors to invest consistently, regardless of market conditions. This approach helps investors average out market fluctuations over time, enabling them to build wealth steadily.
Investing through SIPs also eliminates the pressure of trying to time the market—a strategy that even seasoned investors find difficult to master. As Sandeep Bagla noted, long-term SIPs can help investors ride out periods of volatility while taking advantage of market growth.
Is It Time to Book Profits?
While some investors may be tempted to book profits given the market’s record highs, experts caution against making hasty decisions. The general consensus is that long-term investors should stay invested, as the broader economic outlook for India remains positive.
However, if your financial goals or risk tolerance have changed, it may be time to rebalance your portfolio. Consult with a financial advisor to assess whether you should take profits, adjust asset allocation, or explore new investment opportunities.
Conclusion: Stay Invested, Stay Balanced
As the Sensex and Nifty 50 continue to break records, investors must remain vigilant but not reactionary. The Indian economy’s growth prospects remain bright, and mutual fund investments continue to offer a diversified and professionally managed path for retail investors.
By maintaining a balanced strategy—one that incorporates equities, debt, and sector-specific investments—you can manage risks while capitalizing on the market’s long-term potential. With SIPs as a steady investment vehicle, you can stay the course through market volatility and position yourself for future growth.
