Investors shouldn't be in a hurry to exit

It may be Diwali time, but the firecrackers will still have to wait for the average investor. With the rally skewed completely in favour of select stocks and sectors, investors haven't benefited in a big way because of the sensex rally. They would have to tread cautiously and it would be difficult to reap handsome gains.

Here are five points that investors can consider while navigating the swift changes in the market environment:

Invest in diversified funds: Diversified equity funds haven't done well in the current rally. But they present a good investing opportunity as they are yet to recover lost ground, say experts. "Investors can opt for diversified funds and value-oriented themes," says Rupesh Nagda, senior VP and head (investment advisory), Alchemy Capital Management. "There are a large number of stocks that are undervalued. When the (real) revival happens, they would offer superior returns," he says.

Don't quit equity with measly gains: For all those who are seeing profits from equity investments after nearly three years, the urge to exit would be irresistible. Advisers, however, caution that investors should not exit equity funds in a hurry after making small returns.

"When the markets turn around, the feel good (factor) comes back. But many lay individual investors exit with 5-10% returns and come back at higher levels," says Sumeet Vaid, founder and CEO, Ffreedom Financial Planners. These investors lose out when the markets make a strong recovery. But the rally offers investors with short-term goals a good window to make profits, say experts.

Keep asset allocation intact: This cardinal principle of investing holds good both in times of crises and when the markets are on a strong wicket. "Keep your broad asset allocation intact as different asset classes would do well at different points of time," says Suresh Sadagopan, founder, Ladder7 Financial Advisories. "Investors can do a tactical rejig or reallocation in their portfolio but should not dramatically change their asset allocation," he says.

'Beaten-down' doesn't mean 'value': Several sectors that have taken a beating haven't recovered in any significant manner. But beaten-down sectors and stocks don't necessarily offer value for investors, say advisers. For instance, the fundamentals for the infrastructure sector, which is one of the worst performers in the last three years, have not changed, they say. "Investors should look at companies with positive cash flows, low debt and good business model," says Nagda.

Don't get carried away: Lastly, investors should not get carried away by the current rally as it is being driven by liquidity, say experts. "It is not a broad-based rally and is not driven by fundamentals. The economy is still not in a great shape," Sadagopan says.