Rising markets offer exit opportunity

Last Updated: Sun, Sep 16, 2012 06:47 hrs

Stock market investors would be a happy lot after last week. With the Bombay Stock Exchange Sensitive Index, or Sensex, rising over 1,000 points in seven trading sessions, many would feel that the stagnation in the market is over.

The Union government bold decisions on Thursday and Friday, along with US Federal Reserve's decision to buy mortgage backed bonds worth $80 billion a month for some time would ensure that liquidity flow into emerging markets and the party continues for some time.

And after almost two years, there seems to be a rally that could sustain for some time. But no one knows for how long. For many investors, this seems to the right time to churn their portfolio – exit duds and enter blue-chips. But use this opportunity wisely.

CJ George, Managing Director, Geojit BNP Paribas Financial Services says that the direction which Reserve Bank of India gives on Monday would be interesting. "One can take a decision on exiting equities after the RBI policy. If they cut rates then it will only add to the slew of good news which means it will further fuel the rally", advises George.

A report by Ambit Capital says that the Sensex will see an upmove of five per cent in the next three months. This means that you still have plenty of time to exit and that too with better profits. This point in time it is too early to take a call on exiting.

The Sensex, at 18,500-odd points, has gone up more than 440 points on Friday. Those who had at entered the markets in 2007, 2008 or even as recent as 2011 may be tempted to exit as they can make some good profit if they exit now. And why not? Sample this: in 2007 September, the Sensex was trading at 15, 600 levels. In 2008 it was 14, 000 and in 2011 September it was 16700 It is quite obvious without doing the math that you stand to profit from Friday's rally.

Market players expect equities to rally between 5-10 per cent more in the near term. So should you use this short rally to exit equities? Well, the expert advise is to wait.

Though these short bursts of rally can be used as good exit points for stocks when one is sitting on losses-this time around the advice is to wait and watch. In August of last year, when markets had risen in 800 points in just two days, investors were advised to exit. However, it was warned then that the rally would not sustain and that is exactly what happened. But this time around a spate of good news has come in.

Keep a keen eye on the markets and the announcements that will be made in the next few days, it will have a bearing on your stock portfolios. One will have to see how the political situation also plays out after these key announcements have been made.

"Valuations are not yet stretched hence we do not suggest profit booking at this juncture," says Prateek Pant, Director Products & Services, RBS Private Banking. "We are in a cycle and one can reap benefits of it only by staying invested for the next few years. There will be a rotation of sectors and expect interest rate sensitives such as consumer durables and banking to benefit the most with reversal in rate cycle, improvement in liquidity and positive policy actions", adds Pant.

Instead what you should do is take a good look at your portfolio and look for one thing. If this rally has led to your stocks at least reaching the price at which you purchased them. If that is the case, book profits, says Prashanth Prabhakaran, President Retail Broking, India Infoline.

You could also make a quick buck. Say, if you had purchased shares of Mahindra and Mahindra at Rs 510 in September of 2008. It is now trading at Rs 777 a share, which is a 52 per cent jump. So if you are absolutely sure of wanting to exit to make a quick buck from this rally, do so.

The same is advice is for equity mutual fund investors. "If you have already been waiting for so long, you can wait for say one more month as markets are likely to go up further. There is no point in exiting your equity schemes just for the sake of getting back your capital. Unless you are sitting on some handsome gains, there is no need to exit", says Amar Ranu, senior manager (third party products), Motilal Oswal Private Wealth.

Another way to take advantage of this rally is to dump "substandard" scrips. Saurabh Mukherjea, Head of Equities, Ambit Capital says that this is a good time to exit substandard or poor quality stocks and invest that money into good quality cash rich companies with competitive advantages. "One should not be greedy with this rally and buy into just about any stock. Look for fundamentally strong companies, as in the in the next one to two years, these scrips will reap you the most benefits", adds Mukherjea. He also adds that there will be political volatility along the way, and it could even happen as early as sometime next week. "Investors have to stay grounded through all of this, if they do they can get double digit returns."

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