The most prudent strategy in investing is to book profit when valuations look unreasonable and unsustainable, said market veteran Sandip Sabharwal in an interview with ET Now.
Sabharwal, who is a SEBI registered investment adviser, runs asksandipsabharwal.com.
"If you are sitting on disproportionate gains at valuations which are much higher than historical valuations, then you need to book profits. There is no harm in booking profits," Sabharwal told ET Now.
Sabharwal believes the next two months may be challenging since the market has gone by more than 10% and is not cheap.
"I think the markets today are under-appreciating the kind of liquidity squeeze which is going to be there globally over the next six months as the tightening cycle plays out and next month as the US Fed actually starts reducing the balance sheet. Till now, it has been baby steps. I think there are global issues which we have to face and this earning season we have seen a 4-5% earnings downgrade overall for the Nifty also," Sabharwal pointed out.
"In this time period, the market has gone up by more than 10% and so are not cheap. In fact, markets are as overbought as they were oversold in March 2020, I would not be surprised if the next two months are challenging for the markets and that could give better opportunities. For people who have made disproportionate profits or portfolios, they have gone up substantially. It makes sense to have 15-20% in cash," he added.
For the IT sector, Sabharwal said this is a good opportunity to lighten up if one is over-exposed to technology because, in case of a recession in the US, there will be demand erosion as well as further margin compression for these companies.
"People should be careful in this sector. The rally should be used to trim or exit," he said.
Disclaimer: This article is based on an ET Now interview published by economictimes.com. The views are those of the analyst and not of MintGenie.