Domestic benchmark indices Sensex and Nifty have seen a good run in 2023, but with the start of the New Year, markets have started experiencing profit booking. In this article, ZeeBiz has decoded with industry experts the process of how to book profits at the right time.

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Before diving into the whole process, let's first understand the meaning of profit booking. According to Narendra Solanki, Head Fundamental Research - Investment Services, Anand Rathi Shares and Stock Brokers, profit booking is when traders or investors sell securities or investments to realise gains and convert them into actual profits. 

Vaibhav Jain, Head of Content & Education, Share.Market (PhonePe Wealth) believes equities don't move in a straight line. Thus, booking profits by exiting is significant to convert and maximise the unrealised gains into realised gains. However, he says timing the market precisely is extremely tricky. 

When is the right time to book profits?

Solanki advises investors and traders to not get emotionally attached to a stock and sell it at the right level.

"Booking profit in stocks becomes difficult for many people as they create an emotional attachment to the stock, and such emotion-based behaviour does not allow to sell the stock, even if it is trading at a higher price," the Head of Fundamental Research - Investment Services at Anand Rathi Shares and Stock Brokers, says.

Along similar lines, CA Kanika Bali, partner, Optimyze Finance LLP says that before entering the market, establish your profit targets and risk tolerance. Once a stock has reached your predetermined target, it might be a prudent time to book profits. Similarly, be vigilant for signs of market instability or if a stock reaches an unsustainable high, indicating the need to secure your gains.

Meanwhile, Share.Market's (PhonePe Wealth) Jain recommends using an asset allocation approach as a strategy.

Jain explains the concept in the following steps:

-Begin by assessing your risk tolerance. 

-Specify the percentage allocation to equities, debts, gold, etc. — maintain this within a range, say positive and negative 5 per cent.

-Regularly review and update your portfolio every two to three months. If any asset class surpasses the permissible limits, it's time to reallocate. 

Jain warns that investors must resist the temptation of letting greed guide decisions, understanding that exiting early doesn't hinder success if markets continue to rise.

What should a beginner keep in mind while booking profits?

Jain advises beginners to follow professional advice if they are unaware of the concept of fundamental and technical analysis. 

Anand Rathi's Solanki suggests that beginners must consider the fundamentals of the company and the broader markets. If the company's earnings are improving and the valuation multiples are also near their highs or more than the industry, it's a wise decision for traders and investors to book atleast some profits.

CA Bali suggests avoiding the temptation to book profits impulsively and letting one's investments mature. She advises investors and traders to have a clear understanding of their financial goals and if they have achieved their target or if the Indian market exhibits signs of a downturn — because that is when one should consider booking profits.

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