Stock markets at record peak: Is it time to hold or fold?
Valuations are clearly on the richer side and a gush of liquidity flow from FIIs has taken markets to historical highs

- Dec 18, 2020,
- Updated Dec 18, 2020 12:06 PM IST
It is not unusual for the stock index of a growing economy to reach new peaks. While the journey is not linear, an informed and seasoned investor who has set a summit in terms of a long-term financial goal will not abandon the climb just because he has reached an interim peak or has to cross over a trough in between.
In the investing world, those troughs are the pockets of uncertainty and anxiety characterised either by a lack of information or our inability to process it. Exiting long-term equity portfolios during these periods of uncertainty is akin to a climber abandoning his climb only because fogs of uncertainty restrict his vision of the next peak or the final summit.
Currently, we are around 9% higher than the previous market peak during January 2020. For a usual year, this isn't a standout performance yet. However, it's a whopping 77% higher than the March 2020 low point. So, what is driving this rally and what should investors do?
At present we draw comfort from the fact that the economy is back on the recovery path, although it's uneven still across time and sectors.
Conclusion of the US election and discovery of vaccine has put a lid on the two major event risks that we faced.
The corporate sector has displayed tremendous resilience in posting year-on-year (YoY) growth in profits amidst falling revenue, essentially through a variety of cost-cutting exercises.
The Atmanirbhar Bharat scheme launched by the government is expected to lay the foundation for a manufacturing revival, helping boost the economy and in turn the equity market over the medium term.
However, valuations are clearly on the richer side and a gush of liquidity flow from FIIs has taken markets to historical highs.
Taking all these into consideration, investors should stay invested in equities as per their long-term asset allocation and not get carried away by over investing in them.
Stay away from complex and exotic equity products. It may also be a good time to get your portfolio evaluated by a professional wealth manager or financial planner to move out of poor-quality investment products or stocks. Staying invested is the only way to reach the summit at the end.
(The author is CEO & MD, ASK Wealth Advisors)
It is not unusual for the stock index of a growing economy to reach new peaks. While the journey is not linear, an informed and seasoned investor who has set a summit in terms of a long-term financial goal will not abandon the climb just because he has reached an interim peak or has to cross over a trough in between.
In the investing world, those troughs are the pockets of uncertainty and anxiety characterised either by a lack of information or our inability to process it. Exiting long-term equity portfolios during these periods of uncertainty is akin to a climber abandoning his climb only because fogs of uncertainty restrict his vision of the next peak or the final summit.
Currently, we are around 9% higher than the previous market peak during January 2020. For a usual year, this isn't a standout performance yet. However, it's a whopping 77% higher than the March 2020 low point. So, what is driving this rally and what should investors do?
At present we draw comfort from the fact that the economy is back on the recovery path, although it's uneven still across time and sectors.
Conclusion of the US election and discovery of vaccine has put a lid on the two major event risks that we faced.
The corporate sector has displayed tremendous resilience in posting year-on-year (YoY) growth in profits amidst falling revenue, essentially through a variety of cost-cutting exercises.
The Atmanirbhar Bharat scheme launched by the government is expected to lay the foundation for a manufacturing revival, helping boost the economy and in turn the equity market over the medium term.
However, valuations are clearly on the richer side and a gush of liquidity flow from FIIs has taken markets to historical highs.
Taking all these into consideration, investors should stay invested in equities as per their long-term asset allocation and not get carried away by over investing in them.
Stay away from complex and exotic equity products. It may also be a good time to get your portfolio evaluated by a professional wealth manager or financial planner to move out of poor-quality investment products or stocks. Staying invested is the only way to reach the summit at the end.
(The author is CEO & MD, ASK Wealth Advisors)