Investment Objectives & Advice

33.5% gain in 49 sessions in Nifty! What should you do next?

Yes, You read it right. Nifty had a phenominal recovery after its sharp decline in Feb/Mar 2020. From the lows of 23 Mar 2020 to 5 Jun 2020, Nifty 50 TRI had a phenominal streak of 33.5% gain. While discussing with my friend about it, he had a question “What do you think about markets future direction?“. This is the most often asked question and still I always have the same answer to these questions, which is “I do not know the future market direction but i can tell what would i do.” Today, I will try to share my thought process on how I decide about my next steps. Though before I do that, I want to also draw your attention to current winning streak and is it quite unique.

Looking back at the history:

I looked at the available 21 years historical data of Nifty 50 TRI to check for such winning streaks. I picked the peaks in such streaks and you can see it was not an unique event. We have had this atleast 4 times in last 21 years. the last winning streak in 2009 can be termed as the fastest and gains were whopping 64.5%

49 Sessions Trend

Each of these cases were unique to the future returns. In 2003, the rally continued for another 6 months before correcting and then it came back to almost similar levels [Blue line]. In 2004 rally corrected before going +ve [Orange Line]. In 2007 [Grey] & 2009 [Yellow] post rally had a uni-directional momemtum before going flat. Below chart can help you visualize the same the one year returns post such rally.

Post Rally Scenario

You can guage that there is no fix answer if the rally will have deep correction or go up further before declining or go down but then will go up again. Everything is possible, Therefore my answer stays the same. “I can not predict the future direction or returns.”

What should you do after this rally?

The answer will depend a lot on what kind of investor you are. let me address few scenarios and strategies below:

  1. If you are a buy & hold type of investor, who had running SIPs for sometime and has done nothing when the markets were falling as your goals are far off. There is no reason to change that philosophy now, You should continue with your SIPs and hope you have the right exit strategy for your investments in place. (Read more about: When should you sell your investments?)
  2. If you have an asset allocation in place and you have rebalanced your portfolio in the recent fall to buy more equity. Your asset allocation should have changed post the rally, you should rebalance it back. For e.g. if you had 50:50 eq and debt, this should have moved to somethin like 57:43 after this rally. You should sell some of the equity to invest back in debt. Don’t wait for a quarter end/ half year plan as the swing is >5% than desired allocation. (Read about: How does Asset Allocation Helps)
  3. If you follow dynamic asset allocation and you adjust based on market valuation levels, you continue to do so. I am a big believer of the same to manage the risk & volatility in your portfolio. As the market valuations have come to, & staying in, neutral zone you can continue with 50:50 allocation in Equity & debt. If you the desired allocation currently and the market goes up further you reduce equity, if it falls below a certain level, increase the exposure to equity. (Read about: Benefit of Dynamic Asset Allocation, Subscribe to our blog to get the Monthly reading of Market Valuation levels)

Lastly, If this was your game money (Tactical money) then you might find this useful. Go for target return approach, this is something I learned in 2014 after making my first mistake. I invested my game money (small amount i had back in 2014) when the valuations were very cheap. The market had a wonderful rally & in less than a year i had gained 25% returns, which I sold completely to book profits and missed on the further slow rally. I corrected this mistake in 2016. When markets corrected on tripple whammy of de-monitization, Brexit vote & US election, I invested the whole game money (bigger pod now) and this time again in less than a year, I had 25%+ gains to deal with.

I used 20% annualized return as my target return and when the money crossed that level, I continue to book the profit on a monthly basis and invest it back, when the next correction happens. Let’s take the example if you have invest 100,000 on Mar 23, 2020 and it is currently 132,000+ within 2 months. At 20% annualized return, I expect the investment value of 103,333 after two months. If i account for tax & exit load then also I should book the profit of 25-27,000 and let the remaining money grow or fall. If the market get’s the steep correction again, you can deploy this 25-27,000 again back at cheaper levels. If market continues the rally, your majority is still invested to get you the benefit. Your capital stays safe in case the market stays flat. 

In summary, You should bother less in predicting the market direction but more about the strategy you are following to continue to make money. Happy Investing!!

P.S: Write to us in case of any questions on your portfolio at contact@eduform.in  Subscribe to our blog to get the monthly valuation levels and updates on our model portfolio. Do share the blog to your friends, if you like the strategy.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.