What to buy? Keep good company, go for large caps

MUMBAI: The sensex has recorded a new high. Should you sit back and wait for a correction? Well, as veteran investor Peter Lynch famously put it: "Far more money has been lost by investors preparing for corrections, than has been lost in corrections themselves."

In the rear-view mirror, all past milestones like 50,000 and 75,000 look like buying opportunities (see top graphic). You would have earned double-digit returns even if you bought at earlier 'record high' levels.

"The market has reached at least one new all-time high every calendar year for last 8 years straight. In 2024 itself, the sensex has closed at new life-time highs 25 times. It could be intimidating to invest when markets are trading at new highs... but one would have been left out if they kept waiting for the perfect opportunity," said Apurva Sheth, head (market perspectives & research) at Samco Securities.

The 10,000-point jump from 70k to 80k translates to 14.4% growth. The 80k-90k journey will require just 12.5% gain. Investing consistently, irrespective of new highs, remains a sensible policy.

The key question then is to what to invest in? "Valuations for large caps are more favourable as mid & small-cap valuations are ahead of their long-term averages. In the current market environment, we prefer investments in flexi-cap strategies with a large-cap bias while still allocating tactically to mid and small-caps," said Virendra Somwanshi, head (wealth management & capital markets) at Bank of Baroda.He added that investors should invest with a horizon of more than 5 years and in a staggered approach.

Stock prices shouldn't be seen in isolation. Their valuation, or the price that you pay for future earnings, is a key factor. "Efficiently managed companies grow more than the sensex. If demand in an economy is growing then, then well-managed companies' profitability is likely to grow. And if profitability grows then stock prices will also grow," said Sheth.

Another reason why investors should stay put is that the rally has global support - the S& has outperformed the sensex so far in this year.

"Perhaps the most significant factor is that the rally has fundamental support. If we achieve above 7% GDP growth in FY25, India would have clocked 7% growth for 4 years in a row, making the country an outlier. Corporate earnings also are decent with FY24 Nifty earnings growing at an impressive 24%," said V K Vijayakumar, chief investment strategist at Geojit Financial Services.

If you need reasons to worry, the major risk is high valuations in the broader market, Vijayakumar said. "Another risk is a trade war between the US and China if Donald Trump returns as US President."


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