Nifty 50 at end of the day closing (11th November 2020) landed at an all-time high benchmark of 12,749.15. Few days before we were illustrating on two topics like,
If you haven’t gone through these articles, please have a look at the above article, which will be like context to the present article.
This article will be in a diplomatic tone, as we will be dealing with both,
- How an investor can see this as an opportunity.
- How to preserve their wealth on this big Bull rally.
Stay with us till the end to get an insight into dealing with these kinds of extreme bull markets.
RECAP OF NIFTY 50 INDEX PRICE in 2020:
- On January 14th, Nifty 50 (N50) reached an all-time high of 12,430 (till that period since Inception). At this point, the P/E of N50 was 28.67.
- On January 30th, the 1st COVID-19 case was confirmed in India.
- 2nd February, Post the Union Budget from Honourable Finance minister, there was a 2% fall and Bank Nifty declined nearly 6% in the single day
- 1st March, the market corrections started and N50 landed at less than 11500. The COVID cases were surging over Europe and were in complete lockdown.
- In March, when WHO declared as Pandemic, the first circuit broken by an 8% fall in 1st hour of trading.
- March ended with a 7-year low, N50 spunked 38%. Nifty landed nearly 7930.
- The RBI and Finance Minister announced the changes in the Repo rate and EMI Moratorium. That was a time when the market backed itself
- Amidst earnings, due to many shares sold out by many leading companies to maintain reserve capital, the market moved unstoppable.
- Finally, the market has breaked January 2020 ever high on 09th November 2020. The current P/E is 34.3.
- The Earnings in January was Rs. 433, and the current earnings are Rs. 368.25.
As a result, the investors who have invested in January have finally would see their portfolio in green color. When you all think of this as good news, to predict the future, you have to check the indicators of the market bubble.
So, let us see what an investor should do at this time, while the market is at an all-time high.
HOW TO PROTECT YOUR WEALTH IN BULL MARKET:
- Every investor will feel the heat only in a Bear market and be cool in the bull market. But, understand the big bubble in the bull is a sign of an upcoming bear market.
- We are not pointing out by technical entry and exit parameters.
- When Index trades at P/E more than 25, every investor should stop their investment.
- This is the time, where you should always focus on liquid cash in hand. Since, if a crash happens the investments will fall for sure and in long run, you will recover all the losses.
- If you are dependent on your investments, this would be a backfire of loss.
- So, you should now focus on holding a minimum of 2 years of expenses you do today. The reason behind is
- If a crash happens, it will take a minimum of 2-3 years for recovery. This was the time period taken in every crash that happened in history apart from the COVID-19 crash to recovery.
- If no crash happens, the economic condition will be slow and Index can’t move further without any earnings.
- If you are investing in SIP. Stop them and accumulate them in the bank or debt funds. These will add to your liquid assets.
In a single phrase, the advice at a high bull market is to have more liquid assets i.e. cash in hand.
HOW TO FIND OPPORTUNITY IN NIFTY 50 INDEX PRICE ALL-TIME HIGH:
There is an opportunity in the bear market and bull market. In the complete year, when you ask an investor who is investing while the market moved up amidst earnings dropping down would have said the following reasons.
- India will become a drug manufacturing capital. So, the pharma stocks and specialty chemical stocks peaked a return never heard of in 6 months. Now, all the stocks are falling back.
- There was news going on that all the manufacturing sites are shifting from China to India.
- EMI Moratorium was another reason.
- Government Stimulus Package.
- Backing on the foreign investments in India in various sectors
- Digitalization investment over India by Google for Rs. 75000 Cr.
But, in reality, Q2’2021 earning has not fulfilled market expectations, apart from a few financial, FMCG, and tech stocks
So, what an investor should do if they need to invest?
- Select the sector, where you are well versed of
- Select one or two stocks from the sector you have great knowledge of. For example, If you have ample knowledge of FMCG, then select stocks like HUL or Godrej
- Analyze them fundamentally both qualitative and quantitative analysis. Calculate the Intrinsic Value of the stocks.
- If possible consult with employees of the company. They will provide you more information than the internet in their company.
- With this data analyze the discount cash flow to predict future growth.
- If the stock comes under the price which you have calculated. Just buy or else please wait.
- It does not manage to buy your favorite stock at a higher price. You should never have a habit of fear of missing out (FOMO).
- Patience should be the key strength while coming into investment. Patience should be exhibited before investing in stock and hold them