Sensex erases US-Iran war losses: What should your investment strategy be?

BSE Sensex has risen by a whopping 8,600 points in the last ten trading sessions - an increase of 11.8%! That’s a remarkable feat for a stock market that has been out of favour by most standards globally this year.Sensex and Nifty are back at their highest levels since 27 February, which was the last trading day before the US-Iran war began on 28 February.There has been a sudden turnaround in sentiment since late October and Indian equities have seen a series of upgrades in the last few days from global brokerages as well.(function{function e{window.addEventListener(`message`,function(e){if(e.data[`datawrapper-height`]!==void 0){var t=document.querySelectorAll(`iframe`);for(var n in e.data[`datawrapper-height`])for(var r=0,i;i=t[r];r++)if(i.contentWindow===e.source){var a=e.data[`datawrapper-height`][n]+`px`;i.style.height=a}}})}e});What’s brought this about?

And importantly, what should your strategy be as an investor? Which sectors will be in focus going forward? We ask experts:The reasons behind the rallyThe recovery in Indian equities has been driven by easing geopolitical concerns, a sharp correction in crude oil prices, a notable reversal in FII flows and decent corporate earnings reported in the second quarter. The US-midterm blow for the Trump administration has strengthened hopes of a swift end to the war with Iran.The crude prices dropped sharply and with easing geopolitical tension the war premium in crude is likely to go down.

This is particularly positive for India as it eases inflationary pressures, supports the rupee and improves the current account position.Additionally, global investors are reassessing their exposure to expensive US technology and artificial intelligence stocks and diversifying towards emerging markets, including India.Resilient domestic economic activity and improving corporate earnings have further supported investor sentiment.There are also hopes that the government may announce relief from long-term capital gains tax in the coming months, another positive that is drawing foreign investors’ interest.VK Vijayakumar, Chief Investment strategist, Geojit Investments Limited lists important reasons:1.⁠ ⁠Weakening of the AI trade after the US mid-term elections.

This is positive for India which is a non-AI trade.2. ⁠The impressive Q2 results which have come much better than expected. The near 24 % earnings growth of Nifty 50 companies is a 12-quarter high.3.⁠ ⁠⁠The above two factors have turned FIIs aggressive buyers in India with a buy figure of Rs 53,170 crore in November, so far. The rally is being led by largecaps which are fairly valued.(function{function e{window.addEventListener(`message`,function(e){if(e.data[`datawrapper-height`]!==void 0){var t=document.querySelectorAll(`iframe`);for(var n in e.data[`datawrapper-height`])for(var r=0,i;i=t[r];r++)if(i.contentWindow===e.source){var a=e.data[`datawrapper-height`][n]+`px`;i.style.height=a}}})}e});The sustainabilitySome experts suggest the possibility of pullbacks of 3-5% as the market digests oil, Fed and geopolitical news.

They advise staggering flow of fresh money over the next few months.Somil Mehta, Head of Retail Research at Mirae Asset Sharekhan says that the sustainability of this rally will depend on whether corporate earnings improve and global uncertainties continue to ease. Any fresh rise in crude oil prices or geopolitical tensions could lead to volatility.But, experts believe the medium-term outlook remains constructive, but some consolidation and intermittent volatility cannot be ruled out after the sharp recovery.“One needs to understand that the market has seen two years and time correction and hence we would not be surprised if benchmark indices soon hit their record highs.

The valuations have become more reasonable following the earlier correction backed by double digit EPS growth over next 2-3 years,” explains Sunny Agrawal, Head - Fundamental Research at SBI Securities.What should you do?The next big question in the minds of investors is: is it time to reassess and adjust their investment strategy? Does their portfolio require a fresh look and if yes, what are the money pockets to invest in?According to experts, in the short term, investors should avoid chasing the rally and use market volatility to gradually accumulate quality stocks.Sunny Agrawal says that investors holding underperforming companies with weak outlooks may use this opportunity to exit, while quality stocks should be retained.“The focus should remain on quality-led rebalancing rather than aggressive portfolio restructuring.

Investors should consider reducing exposure to expensive stocks where valuations have outpaced earnings, increasing allocation towards quality businesses with sustainable growth prospects, and diversifying excessive sector concentration,” he tells TOI.(function{function e{window.addEventListener(`message`,function(e){if(e.data[`datawrapper-height`]!==void 0){var t=document.querySelectorAll(`iframe`);for(var n in e.data[`datawrapper-height`])for(var r=0,i;i=t[r];r++)if(i.contentWindow===e.source){var a=e.data[`datawrapper-height`][n]+`px`;i.style.height=a}}})}e});According to him, the next phase of wealth creation is likely to be driven more by company-specific earnings growth than by a broad-based market re-rating.“We prefer businesses delivering sustainable 15–20% earnings growth at reasonable valuations, backed by strong balance sheets and credible management execution,” he says.SBI Securities’ expert recommends maintaining a largecap-oriented portfolio while selectively increasing exposure to quality midcaps and smallcaps.“Long-term investors should focus on businesses benefiting from structural growth opportunities, particularly domestic capex, manufacturing, consumption, electrification and infrastructure development etc,” he says.“Largecaps offer relatively valuation supported by earnings visibility and stability, while midcaps provide opportunities for higher earnings growth and alpha ge…