Equity Market is Highly Overvalued - Book Profit Now!

Equity Market is Highly Overvalued – Book Profit Now!

Roboadviso     Asset Allocation,Economy,Financial Planning     Posted On, Tue 4th April, 2017     No comments

Time to sell equity shares and mutual funds

Sensex closed at a record high of 29910 on 3rd April, 2017. The time has come for some profit booking and rebalancing of overall portfolio.

Sensex has moved up by approx 20% in last 1 year and equity mutual funds have moved up by approx 30%.

The Corporate Earnings have not been growing since the last 2 years which has created huge overvaluation of market. Currently, the PE Ratio of Nifty is 23.4 and for NSE 500 it is 27.02. The fair value level of PE Ratio is around 19.

Its recommended to go ahead and move 10%-20% of current Equity portfolio to Debt. Only those investments are to be shifted which have completed 1 year and are free of exit load and tax.

Important points for consideration:

  • Sensex is representative of only top 30 Large Companies. Mid Cap and Small caps have grown much more than large cap and are even more highly overvalued.
  • We are bullish on Equity from a long term perspective (7 year plus) but next 1-2 years are expected to be volatile.
  • Rebalancing always helps in taking advantage of volatility. Rebalancing leads to higher return with lower risk.

As per research, investors have not made return in equity for next 3 years if the investment was done at this valuation. Its prudent to go slow on equity and to be careful.

We are not recommending to completely exit equity at this level because in long term (7 years plus) equity gives high and decent return. The reason equity will give high return in long term is Indian Demographics. We have huge population which is young & working and also the per capita income of India is among the lowest in world. Till the time, these two factors are positive, Indian Equity will continue to give high double digit returns.

If you need help with profit booking in your current portfolio, then submit your portfolio to our Portfolio X-Ray Section

Happy Profit Booking!!

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