How to navigate your portfolio through bull market a

Indian equities have been in a bull run for the past four years.

- Sudipta Mitu

From a low of around 27,000 plus in March 2020, the Sensex soared to around 85,500 in September 2024. Since then, it has corrected slightly and now stands at around 81,500 (October 16, 2024). Despite this recent correction, there is no indication that the bull run is nearing its end. While this may come as a surprise to many investors, mistakes can be made even during a bull run. Here is a roadmap to help you navigate this bull run safely.

Follow the diversification mantra

During bull runs, many investors, especially those who have recently entered the markets, tend to chase past performance. In this recent bull run, mid- and small-cap funds have outperformed large-cap funds. Many investors may have allocated a significant portion of their portfolios to these funds. In fact, some may be exclusively invested in mid- and small-cap funds. Others may be invested heavily in sector and thematic funds, which tend to carry high concentration risk. These investors should consider a course correction and build a diversified portfolio.

During a bull market, you may hear many experts on television predict that a particular portion of the market will outperform in the future. Ignore them.

What is the rationale for building a diversified portfolio? The most important one is that no asset class performs well all the time. In a sustained bull run like the current one, it may appear that equities always do well, but this is not true. There will be years when debt mutual funds or gold outperform equities. It is difficult to predict which asset class will excel in a given year. The solution to this problem is not to chase the currently outperforming asset class but to build a diversified portfolio, enabling you to capture the returns from whichever asset class is performing well at any given time.