Bear Market Caveat
The Indian Stock market is Selling at a High Valuations. At the same time, the IndiaVix Index volatility index is showing low readings. Index PE is continuously expanding without a break and earning are not justifying the increasing PE.
Mid Cap and Small Cap are showing unreasonable valuations. IPO are registering back to back listing with huge over subscriptions. Bond prices seem to be unreasonable looking at the yields versus inflations analysis. Alarm bells have been ringing at various financial ratios. Market capitalization to GDP has caught up in recent time very fast. Although there is a lot of room let for the ratio to touch 100, perhaps climbing too fast too soon is always a concern. During the bull run of 06-07, the ratio touched an all-time high of 152. The current market stands around 74.
Bull Market Opportunist
The next growth engine is going to start from the government side. Since the Indian government has increased their spendings. Certain sectors have been noted for the unprecedented rise in spending from the government’s side. Modi govt is about to embark on its biggest spending spree said one of the American journals. Cash is abundant along with global economic recovery. There is good news all around and this is reflecting in the securities. The Indian Nifty Index is breaking all the time high.
Buy & Hold
If time’s on your side, don’t time the market.
If you a very long term investor and you are not investing your emergency cash continue doing it. Another option is to divert some funds from mid caps and small caps to large caps. During the great bear market, the first to run out would be the small caps and mid caps. Also diverting some to debt is not a bad idea.
If you’re optimistic about the market and still want to be cautious about it. Hedge your entire position. Buy cheap puts because the market crash and shock do not tell before coming. Get advised by finance professionals on how to get your entire portfolio insured at a very reasonable cost and at the same time indemnify you. Buying insurance might look expensive at the first sight of it but over a long period of time will definitely be beneficial.
Divert some of the funds to secure underlying such as gold or bonds. Return are very less relatively at the current market situation but when things turn sour people first rush to gold and then you would have missed the initial run up. One can always break the investment when the market bottoms out and get to buy the stock that interested them at really cheap valuations.
Diversify the Asset Class and Market
Opportunities are endless why stop with only one market and economy. Now you have the option to buy Foreign country ETF. The government of India has raised the limits on the amount one can invest in the foreign country. Take benefit of that.
Always remember the market takes a lot of time to climb up and falling down is much faster than one can imagine.
Even if you have invested at peak then your return would be delayed only by 4 years.
There are lot more creative and sustainable ways to protect your market investment. If you just try and treat this as important aspect I am sure you would find a much innovative way to get a positive alpha return even in the down market.