Nifty Index Investing Newsletter [6th Jan 2024]
What to do in current market scenario ? SIP or Lump sum ?
First week of 2024 has been umm… decent I would say.
Overall Nifty has remained flat through the week, but there are certain markers indicating some overheated nature especially this week. For reference, see the snapshot below :
90% of 750 stock universe (Nifty500 and Nifty MicroCap250) are above 200 DMA and this is a clear sign on markets overheating. Just think about it from a logical sense, are all hypothetical students in hypothetical class above average ? Not really…
So, all stocks cannot be above average and this heat will dissipate and come back to normality, its just a matter of time.
Although the passive investor in me is smiling and getting cash ready to deploy when blood hits the streets, It will be prudent to mention that one should tread carefully as we can spot certain markers data is showing us, but the markets are holding up so we need to respect the markets and not go against the trend (your friend) until the data supports that thought.
Let’s get to the meat of this week’s update and see how the Nifty Market Breadth Tables are looking now. If you remember we shared the table last week and recommended that one should stick with SIP for January 2024. Following is the link in case you missed the previous update : 30th Dec 2023 Newsletter
In case you are confused about what the column headers in the table mean, following definitions should help you out (also shared in the previous newsletter):
200 DMA → 200 Day Moving Average
Above → % of Stocks in Nifty 500 Index above its 200 DMA price
Lower → % of Stocks in Nifty 500 Index lower its 200 DMA price
50 DMA → 50 Day Moving Average
Above → % of Stocks in Nifty 500 Index above its 50 DMA price
Lower → % of Stocks in Nifty 500 Index lower its 50 DMA price
New Highs → # of stocks making New 52 Week Highs
New Lows → # of stocks making New 52 Week Lows
Net New Highs → New Highs - New Lows
So, our rule here is “red cell in the row” be aggressive and buy lumpsum ELSE keep the monthly SIP rolling as per plan…
Based on the above rule, keep the SIP train on track and DO THE MONTHLY SIP if you haven’t already for this particular month.
As always, I’ll be sharing weekly updates with the above tables and it will slowly become apparent when should one be aggressive or when should one continue with SIPs. As long as data gives you comfort to invest big, that’s all we need data for. Removing emotion from SIPs is the best thing a passive investor can do. And investing big lumpsum amounts when the time comes will be like a rocket fuel to overall corpus.
For reference, in 2023, One should have been aggressive with lumpsum investments in Jan-Feb-Mar-Apr-Nov as per data in the above tables. This would have resulted in better returns when we consider investing in the Indexes (whether it be Nifty50, Nifty500 or Nifty MicroCap250).
Intention here is to average out fund units when turbulence hits. This way we lower our average purchase price more aggressively than when done with SIPs.
Please note, this strategy is usable only when you believe the India story and want to be part of India’s growth. If India has to grow and become a bigger economy, then Indexes like Nifty50, Nifty500 & NiftyMicroCap250 have to go much higher from here.
Covering Top 750 stocks (Nifty 500 and NiftyMicroCap250) is more than enough for the passive investor, going beyond that becomes too risky as liquidity is not supportive much.
Have a great week ahead and Happy Investing :)