Sensex Hits 80K: 3 Key Steps Investors Should Take Now

Indian stock markets are on a bull run reaching new highs and benefiting investors with profits. On 3rd July 2024, S&P BSE Sensex surpassed 80,000 mark for the first time.

Sensex has seen milestones in its journey marking rapid gains and occasional slowdowns over the years. From its inception index has displayed remarkable growth achieving a compounded annual growth rate (CAGR) of approximately 16% over 45 years.

Recent surge from 70,000 to 80,000 mark stands out as the shortest span for a 10,000 point increase taking just 138 sessions. This swift rally began when the Sensex crossed 70,000 mark on December 11, 2023 and reached 80,074.30 points on July 3, 2024.

Comparatively, index had earlier crossed the 60,000 mark in September 2021, 50,000 mark in January 2021 and had been at 40,000 in June 2019 and 30,000 in March 2015. The journey from 20,000 to 40,000 mark took longer influenced by the global financial crisis with the Sensex touching 20,000 in December 2007 and doubling to 40,000 by June 3, 2019.

Before the global financial crisis sensex made rapid gains moving from 10,000 mark in February 2006 to 20,000 mark in December 2007 in less than two years.

Now when sensex has touched 80k mark here are 3 key considerations at this level for investors:

Asset allocation

When the stock market experiences gains, as it has recently with the Sensex rising 11% this year and 22% over the past year, it can impact your investment strategy. Asset allocation becomes crucial in this scenario.

Asset allocation means deciding how much of your money should be invested in different types of assets like stocks, bonds or gold. For example, if you planned to have 60% of your portfolio in stocks based on your risk tolerance and financial goals but due to market gains it has increased to 65% you might consider rebalancing. This involves selling some stocks to bring your allocation back to the planned 60% and then investing the proceeds into other asset classes like bonds or gold.

Nilesh Shah from Kotak Mahindra Asset Management emphasizes the importance of investing according to your risk tolerance, maintaining a long term perspective and adjusting return expectations realistically amidst market fluctuations. This approach ensures that your investments align with your financial goals while managing risk.

Experts also recommend continuing systematic investment plans or SIPs where you invest a fixed amount regularly regardless of market conditions. This disciplined approach helps in averaging out the cost of investments over time and staying committed to your long term financial strategy.

In essence, asset allocation involves diversifying your investments to manage risk and optimize returns based on your risk appetite and financial objectives. It's about balancing your portfolio across different asset classes and staying disciplined in your investment approach even during market fluctuations.

Importance of Allocating to Fixed Income Instruments

In the excitement of rising stock markets, don't overlook your investments in bonds and other debt instruments.

Interest rates are expected to start decreasing by the end of this year. Currently, the yield on the 10 year government bond which is a key benchmark is around 7%. When interest rates go down, bond prices typically go up it's an inverse relationship.

Experts suggest that now is a good time to consider long term bond funds. Research shows that if you hold government bond funds for a longer period the risk of losing money becomes minimal.

Recent inclusion of Indian government bonds in the global JP Morgan index is expected to further boost bond prices in the future, according to Marzban Irani from LIC Mutual Fund. However, he emphasizes that investing in bonds isn't just about potential price increases. Bonds also add stability to your investment portfolio. Even when you're making profits from stocks, it's wise to allocate some money to bonds rather than keeping it all in your bank account or spending it.

Irani points out that India's economic indicators are positive the current account deficit is improving, inflation is under control at below 5 percent and global central banks are likely to reduce interest rates with the European Central Bank already starting to cut rates.

In essence, investing in bonds now not only offers potential price gains but also helps balance the risk in your overall investment strategy.

Gold: Stability and Preservation, Not Wealth Creation

Chirag Mehta, Chief Investment Officer at Quantum Mutual Fund, recently wrote in an article on Moneycontrol the role of gold in times of economic uncertainty. Mehta highlighted that gold serves as a stabilizing asset particularly during crises, geopolitical tensions and economic instability. He emphasized that while gold isn't viewed as a vehicle for generating substantial wealth like stocks or real estate, it plays a crucial role in preserving the value of savings over the long term.

Mehta cautioned against viewing gold solely based on its potential for price appreciation. Instead, he suggested that owning gold is primarily about minimizing downside risks and providing stability to an investment portfolio. He recommended considering gold as a long term investment for stability and value preservation rather than expecting significant short-term returns.

In terms of practical investment strategies, Mehta advised investors to consider a combination of Sovereign Gold Bonds and gold mutual funds. Sovereign Gold Bonds are issued by the government and provide an opportunity to invest in gold without the need for physical storage, making them a convenient option for long term investors looking to include gold in their portfolios.

Overall, Mehta's advice highlights the dual role of gold as a hedge against uncertainty and a means to maintain the value of savings, making it a strategic component in a diversified investment strategy.