i would suggest that small investor sell off some of their investment and book their profit at current level. chances are from here sensex mite move on to level of 8000, but use common sense how many times has sensex been steady at top, so just sell off some part of portfolio sit on cash for sometime and then when market crashes come out and buy it again.
The sensex has over the past 1 year consistently risen due to the continous flow of FII investment and a favourable political climate. even forex reserves are at a comforable USD 140 billion which should let india absorb any oil price hike.
I feel the small investor should now focus on index based funds which has higher risk / higher retuns.
Since the rate of return that FII are getting is much higher than any other markets, the money will keep coming in. the distribution could vary , some sectore may get more weightage. but the over mood is upbeat.