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Though the market momentum is high, partial profit booking is not a bad idea and can be used by short-term investors and traders. Sell in May and go away is a common phrase among market traders as markets are usually weak during this period. However, for the past three years, May has not been a particularly bad month for the stock market. But this does not mean that short term investors—and traders—can ignore the saying altogether, say experts.

Stocks that have gained the most These BSE stocks have rallied massively since the start of this year Source: Bloomberg and ETIG Database A sizeable correction after such a rally is quite possible. The Sensex closing above the 30, mark, for the first time, is another reason to be cautious.

Stocks that have tumbled These BSE stocks have fallen the most since the start of this year Source: Bloomberg and ETIG Database Course correction? Most experts expect some correction in the market and are advising investors to be cautious.

The stock market rises because of two reasons—liquidity and fundamentals. The liquidity flow—money coming into the market—both from FIIs and domestic investors has increased in the recent past and has kept the market strong. However, investors need to be careful. Kohli, Director and Head of Research, India Nivesh Securities.

Also, the current rise in the market is not supported by fundamentals, making a correction all the more likely. Dollex 30 year-to-date returns FIIs track this index to invest in India. Though the market has skipped the May effect for the past three years, this time investors need to be cautious Source: Bloomberg How big could the correction be?

So, short-term investors should avoid putting fresh money into the market.

They also need to maintain a strict stop loss for the remaining portfolio. Investors also need to be careful with the kind of sectors and stocks they hold. Stay invested only in high quality stocks and avoid companies with a huge debt or corporate governance issues. A look at the top gainers—year-to-date—reveals that the market has not distinguished between good and bad companies in the recent rally.

STOCKFUNDOO: How and When to Book Profits!

For instance, DLF which is quoting at a PE of 48, is among the top gainers. Several other real estate stocks have also rallied. This, despite the real estate sector going through a painful period of demand contraction due to demonetisation. Even with quality stocks, investors need to make sure they are not overpaying. Living and entertainment Timescity iDiva Zoom Luxpresso Gaana Happytrips Cricbuzz Get Smartapp Networking itimes MensXP.

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Key to building wealth: Book profit regularly in stock market | Business Standard News

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