Updated: Oct 18, 2021
Nifty continues to make new highs. Investors with SIP's running in equity mutual funds are sitting on handsome profits. On average, a 3 Year SIP has yielded 25% returns.
Most financial advisors argue that there is no right time to start or stop a SIP. Most people argue that it is time in the market and not timing the market that matters the most however there are some time-tested indicators that are showing signs of a deep correction coming up. Let us take a look at them.
Above is the image of Nifty with a monthly RSI above 82. Now if we do look at this from a historical perspective we have always seen a 10-20% correction within a span of 3 months once monthly RSI has touched 82+ and we are trading at 82+ so if history repeats itself we do see a correction coming up. I am not advocating exiting right away. There are some more complex parameters we follow and we will guide our clients when to book out but here is a warning sign. Not our client yet just start a broking account with us and get our advice for FREE.
Nifty correction due to rising bond yields
Bond yields indicating the end of the low-interest cycle due to high inflation. As crude oil continues to rally and petrol prices and diesel prices continue to move up inflation will become a bigger concern each passing day and though part of it will be digested stock markets, for now, are not pricing in a rate hike by RBI or the FED however sooner than later rate hikes will come if bond yields keep trading above 6.32 and that could be a trigger for near term correction.
Also for the past few days, we are seeing euphoria in the markets. Most stocks have started a parabolic move and this generally is seen during the last phase of a upcycle off course needless to say that this is unsustainable.
There are numerous other leading indicators suggesting that over the next few months a sharp correction is about to set in.
So what should investors do?
Book out of SIP's on a breakdown in the Nifty and move to IIFL NCD bond which is offering 8.75% PA. (We will tell our clients when to get out) and look to redeploy in the best smallcases on dips. This will be a better strategy and will generate better returns than continuing SIP's at this stage. Also, why smallcases are better than Mutual funds? Click here to know.
If you still want to be invested then the other alternative is moving to a balanced fund.
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