During the last month, the Nifty Midcap 100 has gone up by around 10% while the Nifty Smallcap 100 has gone up by around 7 percent.
FIIs have pumped in almost Rs 16,860 crores (approximately US$ 2.1 billion) between 1st August 2022 and 18th August 2022.
Bear in mind that they had pulled out Rs 2,89,970 crores (approximately US$ 36 billion) during this calendar year between January 2022 and July 2022.
According to our research, 42% of companies that have reported their Q1 FY23 earnings so far have outperformed by exceeding street expectations.
Analysts expect the second half of the year to improve due to the easing consumer inflation index and softening commodity prices that could ease the pressure on margins. Easing inflation will encourage retail investors to stay optimistic about economic recovery.
This positive rally doesn’t mean one must forget everything and let the allure of high returns derail their plans committing mistakes that could put a brake on their wealth creation efforts.
It is vital to keep a check when the markets are down. It is even more crucial to do it when the markets surge.
Avoid making these six common mistakes
1.
Investing in Bulk due to FOMO
When the markets are rising, investors experience the fear of missing out (FOMO). Such investors believe it is the right time to earn some more quickly. Bulk investing is not the right approach for one to follow. Instead, invest in a staggered manner, and diversify across asset classes so that it helps to meet financial goals. One should consider staying invested for the longer term if wealth creation is the goal.
2.
Exiting Quality Stocks
In a rising market, good-quality stocks could seem overvalued. Investors tend to sell such stocks and invest in stocks trading at lower valuations since the markets are rising. Doing so can be a mistake and hamper wealth creation eventually. Some of the biggest wealth creators in the Indian stock markets have always been highly valued due to being MNCs or having highly credible promoters or enjoying an increase in free cash flows year on year. So, if you have invested in fundamentally sound stocks, don’t exit unless there is something inherently wrong with the business.
3.
Following the Herd
Herd mentality is a common investing bias that becomes more apparent when the market soars. Consider the financial goals and study the stocks instead of investing on the basis of Whatsapp forwards or tips. Don’t be impulsive; pause, research, understand if it meets the needs, and then decide. Consider taking advice from a financial advisor if needed.
4.
Ignoring your Risk Appetite and Financial Goals
Investments are based on risk appetite and financial goals. Investors may ignore risks when markets are rising. Even risk-averse investors may believe in the euphoria and disregard their risk profiles. Investors must be cognizant of their risk-taking capabilities and shouldn’t go overboard while investing. For instance, one may be tempted to invest one’s emergency funds or money saved up for achieving a specific financial goal. For cautious investors, sleepless nights at the slightest hint of volatility may not be far away. It could mean making mistakes in investing decisions and unbalancing the asset allocation.
5.
Getting influenced by popular individuals
Today there is no dearth of popular individuals sharing their views on which stocks should be purchased or sold. They may offer stock recommendations over social media and messaging platforms. Some of them may not even have the relevant certifications. Hence, one may want to be careful while buying shares only on the basis of recommendations provided by such individuals.
One may also find renowned fund managers sharing their views on stocks or sectors that are bound to do well in a rising market. However, they could have completely different investment objectives and risk appetites which would not be aligned with those of retail investors.
6.
Focusing on the next big theme or trend
Seasoned investors may be adept at changing their strategies and would be able to identify the next theme or trend that could enjoy a bull run. But retail investors would be advised to maintain a diversified profile unless they have a credible investment advisor guiding them. For instance, investors invested in IT and Pharma stocks that grew as the markets recovered after COVID-19. They believed the exponential growth phase would continue. However, when the bull run gave way to corrections, they lost money. An investor must diversify and invest in companies with prospects even when the markets are high.
Remember, markets always perform in cycles. Periods of volatility are followed by euphoric highs which can be again dented by falling markets. An investor should ideally remain invested in fundamentally strong stocks across these business cycles to create wealth over the long term. Opportunities can be discovered by conducting thorough research in both bull and bear markets.
(The author is Chief Investment Officer (CIO), Research & Ranking)
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)
