As Nifty 50 surges, should you rebalance your portfolio? An investment manager weighs in

Nifty 50 has surged nearly 12% over the past five months, rising from 22,082 on March 4, 2025, to a high of 24,734 recorded today (August 4, 2025).

While the markets remain resilient despite volatility and global trade and geopolitical uncertainties, many investors are in a dilemma of whether to rebalance their portfolios or ride the wave.

Experts feel that portfolio discipline and rebalancing toward value-backed growth themes are crucial even as the overall sentiment remains upbeat.

According to an investment manager, investors should pause and re-evaluate portfolio positioning as we move toward the second half of FY 2025-26.

"Although the economy appears to be recovering, sectoral divergence and value gaps necessitate a more sophisticated strategy than simply riding the bull market," said Anand K Rathi, co-founder, MIRA Money.

"Sectors like banking, rural consumption, and diversified large caps offer a better risk-adjusted reward ratio in H2 2025. Investors should be cautious about sectors where prices have moved but earnings haven’t followed. Riding the wave is fine, as long as you know where it leads," he further said.

Rathi pointed out the following sectoral divergences and overvaluation signals that investors may take note of at this time:

A number of cyclical industries, such as infrastructure and capital goods, have experienced substantial development in anticipation of infra-led expansion.

As of July 2025, the Nifty Infra Index had returned about 22.8% year-to-date; nevertheless, many of the underlying companies had stagnant QoQ profits.

The capital goods index is up around 25% so far this year, but EPS growth has been patchy, and ahead P/Es have surpassed 32x, which is much higher than the 10-year trend of about 20x.

Nifty IT, on the other hand, has underperformed, returning about 9.7% year-to-date. It has been hampered by the slowdown in global tech spending and difficulties integrating AI.

There are also some resilient sectors that one can watch:

With steady earnings growth, private banks and NBFCs have experienced a resurgence in popularity. With credit growth of 16.4% YoY and GNPA levels falling below 3% for the majority of significant banks, Nifty Bank, for example, is up almost 16% so far this year.

A 20% rise in MNREGA allocation and above-normal monsoons are helping the FMCG and agri-inputs industries boost rural demand. This sector's consumption-heavy midcaps are experiencing year-over-year earnings growth of 12–14%.

Due to their quicker adoption of AI, a few mid-cap IT companies are outperforming Tier-1 companies in terms of growth and gaining deals, and higher margins.

Why and how to rebalance

Rathi says a significant amount of the Nifty gains this year might already be priced in. Therefore, investors should evaluate the distribution of their portfolios and reduce their exposure to overpriced themes.

"Consider moving to more balanced or large-cap strategies, where valuation comfort is stronger, from mid- or small-cap theme funds, some of which have risen by 25–30% year-to-date," Rathi said.

"While lump sum or tactical exposure should move toward growing sectors with earnings support, SIPs should remain in place," he added.