When flows drive the markets, they challenge both professional and proprietary investors. The double engines of active domestic and foreign participation are firing the market up. If this trend sustains for a few weeks, we could see more investors lose patience. Many have waited on the sidelines patiently for a correction. Losing patience under such circumstances results in deploying money at higher valuations, affecting the scope to earn more returns. Returns moderate at higher valuations.
Yet, investors may find it harder to wait on the sidelines and get left out of a sharp market rally. They are grappling with a tough question with no right answers: “To invest or not now?”.
A valuation-driven decision-making approach will give investors clear answers on what to do. If valuations in a stock are reasonable, then targeted deployment makes sense. If an investor identifies a basket of attractively valued stocks and finds them suitable to align in a portfolio, he can deploy capital in any market context.
This market will belong to investors, professional and proprietary, who can think beyond the immediate. The task is to spot long-term opportunities in companies that will deliver superior returns even if invested in the current market. The challenge before investors is to align company valuations, growth prospects, and investment strategy to their portfolio needs and ensure their disciplined and measured decision-making.
In the present circumstances, controlled aggression trumps overpaying. The need to deploy capital and the prevailing investment compulsions should be handled maturely in this market. A staggered approach to deploying money may help investors navigate this flow-centric market better.