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How to rebuild stock portfolio after market crash? Experts share 5 lessons

Stock portfolio management: Following the outbreak of the Russia-Ukraine war on 24 February 2022, stock markets crashed worldwide. After more than four and half months of the ongoing geopolitical tension, equity markets are yet to fully recover. On the Dalal Street, key benchmark indices (BSE Sensex and NSE Nifty) are down by nearly 9 per cent in year-to-date time leading to huge losses in an investors stock portfolio as good number of stocks have hit a new 52-week low in the recent sell-off. Thus, it’s important for an equity investor to rebuild one’s stock portfolio.

Speaking on how to rebuild one’s stock portfolio after such a huge stock market crash, Mayur Shah, PMS Fund Manager at Anand Rathi Advisors said, “When markets are making new highs it’s difficult to identify better value stock as everything trades at fair or premium valuation. Also difficult to predict future challenges and risks. When the market corrects, and if you follow a wait and watch kind of policy there could be the possibility of accumulated dead stock in the portfolio, which can lead to underperformance. Your portfolio would have fallen with correction but to outperform the market when the market rise is very critical. Weak markets provide the best opportunity to optimize the stock portfolio.”

What stock portfolio management rule book says

On how investors can mange one’s stock portfolio after such a big fall in the equity markets, Richa Agarwal, Senior Research Analyst at Equitymaster said, “Instead of speculating or timing market and stock price movements, it helps to play by the rulebook that has worked across cycles and to have a long term horizon. Over longer time intervals, valuations reflect business fundamentals, and most of the macro concerns end up being noise.”

Richa went on to add that money and liquidity in the business are no substitutes for prudent capital allocation. And that’s where the management quality comes in. Long term investing is like entering a partnership with the managements of the companies you invest in. So they need to make the cut not just on aspects of intelligence and execution, but integrity as well.

How to buy shares

Sharing an ideal strategy to rebuild one’s stock portfolio following such a long dip in the equity market, Rahul Shah-Co-Head of Research at Equitymaster said, “This is one of those tricky environments where there is no clear direction. Absence of any positive triggers is keeping traders on tenterhooks and long term investors don’t want to jump in either because valuations haven’t extremely attractive just yet. The best strategy right now is to either have some cash on the side lines or keep buying fundamentally strong stocks in a phased manner, something like an SIP.”

Unveiling strategy to rebuild one’s stock portfolio after the big fall in stock market, Mayur Shah of Anand Rathi Advisors listed out the following five lessons for stock investors:

1] Identify the challenges/Risk in the market which has led to the downtrend;

2] Identify the sectors and respective stocks which are more sensitive to these challenges and which are not;

3] Exit those stocks whose profitability for the medium to long term might drop due to these challenges;

4] Invest in stocks not impacted by the current challenges and due to correction they are available at better price which you were not able to buy due to premium valuation; and

5] Active management is required and one might have to book losses to make the overall portfolio good.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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