Is it time to book profit or restructure your portfolio?

Because the second wave of the pandemic has hit our country harder than any other in the world, all of the main states have chosen for partial or complete lockdown in order to contain COVID-19’s wild spread. Given the current condition, it appears that the epidemic will not be over anytime soon, or at least not until the bulk of India’s population has been vaccinated.

At such a moment, one of the most basic decisions that all investors face is whether to record profit or reorganize their portfolio to lock in their profits. Let us first understand the circumstance before attempting to answer the question or make a decision.

Phase 1 (First Wave)

An unforeseen virus struck the world just as the Indian economy was beginning to show signs of revival. The virus spread over the country, and the administration was unprepared to deal with a lockdown situation. However, there was no other option, thus lockdown was implemented. People across the country were obliged to stay at home to avoid being infected by a fatal illness, bringing economic activity to a halt. It was evident that a significant increase in medical infrastructure was required to deal with the epidemic and the possibility for worse times ahead.

The Indian equities market reacted quickly and lost territory in approximately 10 trading sessions as a result of internal and foreign concerns. Following the shutdown, the government and the Reserve Bank of India (RBI) took a number of steps to enhance systemic liquidity. As a measure of reviving the economy, one of the steps taken was to lower interest rates and give stimulus. This was followed by a slew of budget announcements aimed at bolstering the country’s infrastructure and industries. All of these actions contributed in economic recovery, as seen by numerous indicators of economic activity.

Phase 2 (Second Wave)

Individuals, corporations, and the government were well aware of how to navigate the changing times based on our previous experience. The system had a lot of liquidity, the medical infrastructure was better equipped, and the government decided to focus on containment zone management, which helped to avoid another nationwide lockdown. Major economic activities like as infrastructure and manufacturing were maintained since they directly or indirectly affect the lives of a significant portion of the population.

After examining both scenarios, it is evident that profits can be booked through portfolio restructuring rather than sitting on cash or switching to a debt fund. Now is the moment to reduce your investment in large-cap funds and shift your money to mid-, small-, and value-oriented funds. Long-term earnings loss will result from sitting on funds or attempting to time the markets. The following is the reasoning for this decision:

The administration has taken active measures to strengthen the economy, including slashing corporate taxes, improving the production linked incentive program (PLI), and working on needed reforms, as well as promoting ‘Atmnirbhar Bharat,’ which has the potential to set India on a new growth trajectory. In the medium run, a pro-growth government willing to spend on infrastructure and other vital industries, as well as low cost of capital for corporations, are positives for the market.

The market has been split in recent years, with a few heavyweights driving benchmark indices to new highs while the border market has lagged behind. The present rally, on the other hand, was broad-based, with participants from a variety of industries and market capitalizations. This is a sign that people are regaining faith in the economy’s ability to thrive. Despite this, the small-cap index has yet to catch up, and is roughly 40% below its all-time high set in January 2018. Surprisingly, the Nifty and Sensex both increased by about 40% at the same time.

The increased capital spending plan presented in the Union Budget 2021 aims to aid the economy’s growth and recovery. As a result, midcap and small cap equities, which are more closely linked to the domestic economic recovery, will benefit. As a result, for those willing to stay engaged for the long term, small and mid-cap pockets offer a chance to profit in the future.