NIFTY At High, A Warning Or A Chance | Business News At A Glance Ep.23

Why is this relevant to you, the MBA student?

Well, there are people interested in the stock market, and there are people who are not. But every once in a while, a phenomenon takes place that drives interest and attention to the stock market. Whether you're a budding investor, an amateur, or just trying to learn new ways of financial thought and strategy, knowing about market highlights could be of great help to you. So let's look at this scenario. Should investors hedge their bets and continue investing in these high performing stocks? Should they pull out right now? Is this a phase?

Well to understand this, let's look at the history first. The Nifty that closed above the psychological mark of 15,000 on February 8 has come a long way after it was launched in April 1996, when it traded at 1,107, with the base year of November 1995 set as 1,000. The Nifty50 took nearly 18 years to reach 7,000, the next 8,000 points come in 6.8 years, Motilal Oswal said in a report. The Nifty 50 Index constituents make up roughly 58% of the total India market cap.

If we look at this closely, from those pandemic influenced lows of 7600 in March 2020, NIFTY has taken a relatively short amount of time to reach the 15k mark. Thanks to the changing dynamics of global liquidity, the COVID vaccine, etc., recovery was imminent.

Data suggests that stocks that have more than doubled investors’ wealth since March belong to economy-linked sectors, finance as well as IT. And some of the stocks featured here are on that list. Especially the banking stocks. Analysts see this rise in the index and the willingness to buy these stocks as a positive sign. It shows that investors are not just buying stocks in quantity, but are also ready to pay for quality. These factors stand to collectively push the index higher still.

One of the factors that seem to influence this positive response is the Budget itself. Since the Government is committed to investing in various sectors, including healthcare, infrastructure, and financial services, investors feel bullish on these stocks too. This creates a ripple of positives and leads investors to hedge their bets and pay for quality future stocks as well.

So should one continue to invest or pull out?

After the recent run-up, investors can look at booking partial profits but the long-term investment argument still remains intact. Analysts also advise on using a trailing stop loss strategy with these long term investments. Basically, it's up to investors to decide when to enter and exit the market. But when to buy and sell stock despite the risk, especially for large scale investors thinking long term, it ain't that simple.

When it comes time to exit the position, your profits stare you directly in the face, but perhaps you are tempted to ride the tide a little longer or—in the unthinkable case of paper losses—your heart tells you to hold tight, to wait until your losses reverse.* This means that experts have developed some methods to determine the optimal time to exit ensuring acceptable returns without high losses. This is what the trailing stop loss strategy mentioned earlier refers to.

Trailing stops are orders to buy or sell securities if they move in directions that an investor considers unfavorable. These orders can be set at a specific percentage or dollar figure away from a security's current market price. A trader can place a trailing stop below the current market price for a long position, or place it above the current market price for a short position.* In the case of these stocks too, this method can be used to determine a good exit point according to analysts.

This would help an investor determine when to exit, and if he should continue to hold the stock. Investors and analysts believe that partial profits can be expected in the short term with these investments, but they also promise long term returns. And most of this can be attributed to the Budget 2021 promising to increase capex in various sectors as well as the COVID 19 vaccination drive.

All said and done, what do you think? Do you think investing in the long term at this time is truly a good choice? Share your thoughts and opinions in the comments section below!

P.S.: We've like to mention short selling and GameStop here. A bunch of small fish taking on the big fish, or an interesting strategy to increase the worth of an ailing stock - no matter how you see it, the GameStop drama had everyone interested - finance and market geeks, strategists, and Reddit as a whole! Check out an in-depth analysis of that drama here.

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RBI's Current Strategy Is Adding To It's Problems

The RBI's balancing act to keep the rupee stable amid heavy foreign inflows while also keeping excess liquidity in check is flooding the market with more foreign funds, promising a vicious cycle of interventions. Read the details in this article.

*Source: Investopedia