Investing in equities or stock markets is one of the best ways to achieve one’s financial goals. However, investors need to be cautious as stocks are also considered one of the riskiest instruments.
Here are key tips for equity investors in 2021:
While asset allocation is a matter of individual perspective, depending on age, financial capabilities, risk profile, and other factors, Gopal Kavalireddi, Head of Research at FYERS, says the current scenario narrows down the investment choices to certain specific avenues, with equity allocation at a substantial percentage.
“Ideal asset allocation should include a lion’s share to equities (65 per cent to direct equity, ETFs & mutual funds), along with a lower allocation to gold (10 per cent), debt (15 per cent through PPF). A 10 per cent cash and equivalent holding for investing during corrections should round up the allocation process,” Kavalireddi advises.
With India and global economies emerging out of a pandemic year, 2021 can witness diverse investment opportunities across companies. According to Kavalireddi, investors should take advantage of this scenario and opt for equities, across mid and small-cap companies.
“IT, pharma, chemicals, consumer-oriented sectors – FMCG, finance, consumer durables – could be the outperforming sectors of this year,” he opines.
Apart from this, Pranjal Kamra – CEO, Finology also stresses portfolio diversification. “The COVID crisis is a strong reminder that having the investments in a single instrument can be dangerous and one must have a diverse range of asset classes to manage the portfolio specific risk. While one cannot protect the investments completely, the volatility can be reduced through effective diversification,” he believes.
According to Kavalireddi, investors should further avoid investing based on others’ views.
“It is vital to spend a decent bit of time and effort to do one’s own research and later, compare and contrast with various analyst/brokerage reports. Reading and comprehending any company’s business in-depth is the key. Quantitative analysis can follow later,” he suggests.
This habit lends perspective, conviction, and a better insight into any company’s recent past and current situation, highlighting financials, fundamentals, and future prospects.
Another critical factor, Kavalireddi explains, is the contribution of management/promoters to the business. “Identify and stick with strong management. Qualitative and visionary management tend to lead their companies well during times of crisis, and nowadays, the crises are too frequent and far too many,” he adds.
Holding cash in the portfolio
Investors have seen one of the greatest market rallies in recent times.
With stocks touching new highs every day, Kamra of Finology says that no investors would prefer to take cash calls but one must not forget that the market is totally unpredictable.
“The muted earnings growth clearly shows that the current valuations are ahead of the fundamentals. However, this does not mean that one should completely exit the market by selling the entire portfolio; but holding cash at this time is essential as this will help in taking advantage of market corrections,” he advises.
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