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The New Year began with the markets touching new highs: the Sensex scaled 50,000, while the Nifty fell just shy of 15k.

A vaccine rollout currently underway and an economy priming for recovery are signs that we are moving into a post-COVID era. What should you keep in mind while investing in 2021? How can you tweak your strategy to adapt to a fast-changing world? Where is the Indian market heading?

Here are some key mantras and tips to invest in 2021.

Diversify

So much has been said about diversification, but it wasn’t until the pandemic that we managed to see just how important and essential it is. To diversify means to essentially spread your risk across companies and sectors, and it is important as markets can be volatile. In simple terms, a diversified portfolio has investments that react differently in any given market scenario. One of the major takeaways of Year 2020 is that having a diversified portfolio is important. Investors who already had a diverse set of stocks across industries and sectors saw their overall portfolio recover faster from the shock delivered in March 2020. Those with high exposure to sectors hit directly by COVID (such as Aviation and Hospitality) have had slower recovery.

Stay Invested

After the Sensex touched 50,000, the one question on everyone’s mind was “Should I sell now?” If you are investing for the long term, then it should not matter whether the Sensex is at 50,000 or near 25,000 (as it was in March 2020). Short-term volatility should not distract you from your long-term goals. If you are backing fundamentally strong companies, stay invested. If you can’t do the research for select stocks, Exchange Traded Funds (ETFs) are great way to reap the benefits of the market. ETFs essentially track the indices (such as Sensex and Nifty) and doesn’t rely on taking calls on individual stocks, where there is always the risk of going wrong. Moreover, in a volatile market, the fund will track the index and not a particular sector or stock. By tracking the index, you already achieve a fair amount of diversification.

Don’t time the market

For new investors, the current rally can be daunting. Don’t time the market and wait for a dip. Your focus should be on good stocks and companies. Many market experts say that despite the record-breaking surge seen across the spectrum, individual stocks can still provide good value in the long term. Focus on companies that are increasing their margins, strengthening their cash flows and broadening their market share. Invest regularly to diversify your risk and to avoid timing the market. Investing periodically or monthly is the best way to create a robust portfolio over time.

Analyse company’s results

While the market has shown a spectacular rebound and the economy seems to be recovering at a robust pace, we would be able to see the true extent of the damage caused by the pandemic and the scale of recovery once the annual results are out. The fourth quarter results would also provide an insight into the same. Track the results closely, as the future course of individual stocks or even sectors will depend on them and will help you separate companies that have been able to improvise their strategies during the pandemic.

Budget 2021

On February 1, Finance Minister Nirmala Sitharaman presented the Union Budget for FY 2021-22. While it is never good to time the market, certain key events must be tracked. The Union Budget is one such event. Through the budget, the government shows its plans for different sectors and hence it is important to go through the budget document carefully.

Track sectors closely

Several sectors were badly hit by COVID, such as Aviation and Hospitality. These sectors are seeing a rebound with broad-based market recovery, so it would be important to track them as well as others that are seeing good recovery, such as the Automobiles sector. As mentioned earlier, the Q4 results and the budget should provide a good indication of how different sectors have been affected by the pandemic and what are their paths to recovery.

IPO season to continue in 2021

The end of 2020 saw a surge of IPOs hitting the market, with 19 IPOs being launched on the Indian bourses with proceeds totalling USD 1.8 billion. Analysts expect that this trend will continue in 2021, riding on strong market sentiment. IPOs can be tricky and you must do proper homework before investing in one. However, they do provide excellent opportunities for growth investing. We have written about how to choose an IPO, where we have discussed this aspect of investing in greater detail.

Don’t let sentiments dictate your strategies. Markets are volatile. They always have been and will continue to see ups and downs. Don’t panic when the market recedes and don’t go overboard when it surges. Remember your investment goals and look for good companies to invest in.