How to invest with a disciplined approach when markets are soaring? MintGenie explains

Market experts feel that having a disciplined investment approach with a fixed investment plan is more important than transient benchmarks.

“Retail investors should not concern themselves too much with market levels,” advises Mayank Bhatnagar, Chief Operating Officer, FinEdge about benchmarks soaring.

“Today with markets reaching new highs, there is a need for retail investors not to get worried about being left out, but to maintain a suitable asset allocation to equity,” says Anil Ghelani, Head-Passive Investment and Products, DSP Mutual Fund, who advises that it would be best not to make any big changes by buying a lot more or at the same time booking gains and sitting on cash.

“Markets are not linear with peaks and bottoms getting formed in the journey,” says Shaily Gang, Head- Products, Tata Asset Management about how benchmark watching does not convey the whole story.

Thus, in the last 30 years, Nifty 50 witnessed temporary declines of more than 10-20% every alternate year and temporary declines of more than 30% once in 8 to 10 years, yet clocking a CAGR (Compounded Annual Growth Rate) of a little over 13%. It is practically impossible to gauge when the market peaks and bottoms will be formed, note experts.

Bhatnagar advises that investors should continue investing in equities in a systematic and disciplined manner, according to a clearly defined goal-based plan. However, it’s crucial for investors to understand risks and rewards, as well as have the right expectations before investing.

More often than not, investing journeys get derailed because investors do not take the time to properly set expectations and understand what they are getting into. In the end, stock markets reward patience and discipline, experts say.

So, you have decided to take the equity plunge despite equities being at elevated levels. Experts guide you on how to go about it.

Retail investors should necessarily utilise tools like SIPs (Systematic Investment Plans) and STPs (Systematic Transfer Plans) to stagger their investments into the market. This should be the rule of thumb irrespective of market levels, say experts.

Over the long term, this is the only real proven success formula for wealth creation from equities.

When daily index values of Nifty 50 are taken and average rolling returns are plotted for 1 year, 3 years, 5 years, 7 years and 10 years, the instances of positive returns increased with time periods and instances of negative returns decreased. The instances of negative returns turned Nil when rolling returns were taken for a 7 years period and beyond. “This is the benefit of long term investing,” says Gang.

Products like Balanced Advantage funds can adjust the net equity exposure levels according to the market valuations and macro indicators depending on the asset allocation model each one follows. During phases of market volatility or at points where valuations have run up, investors can increase exposure to such products.

Fund features of Systematic Transfer Plan, Flex STP and Trigger feature can be attached to funds to navigate various market phases. Exposure to the markets can be done by using the above features with Debt scheme being the Source scheme and Equity scheme being the Target scheme. “Exposure away from the markets can be executed vice-versa,” says Gang, noting the MF perspective of looking at investments at elevated levels.

But, in the main, you and the investor should know your priorities. “It is important to set up clearly defined goals and invest according to them, instead of making ad hoc investments without any clearly defined purpose,” says Bhatnagar.

Valuation metrics

The equity markets have various valuation metrics like P/E etc that may be a gauge on how to invest. Experts gave their take on the relevance of such metrics in a situation of elevated equity levels.

“Investors could look at valuation metrics of forward P/E and compare the same to historical averages to assess the current valuation,” says Gang.

India’s market premiums could be compared to other Emerging market’s historical average premiums.

Within India again, valuation of market-cap segments could be looked into as to whether midcaps and Small-caps are trading at a steep premium or marginal premium to large-caps to assess the relative attractiveness.

“Retail investors really should not attach much significance to valuation metrics!,” says Bhatnagar They should instead focus more on having a great investing process that builds resilience to withstand market cycles. While these indicators do give you a broad idea of where we stand in terms of valuation, they cannot be used to time market entry or exit. The best way to invest in equities is by continuing your SIPs throughout market cycles.

Manik Kumar Malakar is a personal finance writer.

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Updated: 29 Oct 2023, 12:07 PM IST