Nifty Index Investing Newsletter [2nd Nov 2024]
What to do in current market scenario ? SIP or Lump sum ?
Festive week is here and markets tried its best to retain its ground and not bleed unlike the earlier couple of weeks. In fact on Monday and Tuesday, Markets went up and made a rally attempt. This rally attempt just seems like some sideways movement for now. If we do rally a bit in the upcoming week, then resistance at the 21 DMA, 50 DMA and the blue line is expected. Once those levels get breached with higher than average volumes, then one can say the uptrend is back and we can hope to hit the ATH levels again. Let’s see how it goes ahead…
Is it overbought/oversold now? Should one buy/sell ? I certainly don’t know, but what we know is how to measure the data points we have been week over week and take decision accordingly as per our risk tolerance. :)
[Please note, I only track 750 stock universe comprising of NIFTY500 and NIFTYMicroCap250 indexes]
Note: As trading on 1st Nov was only for a small duration, not a full trading day, analyzing market breadth for that day will not be helpful for tracking purposes.
Last week we had an over reaction from the markets as mentioned in previous newsletter. As expected, Monday and Tuesday we saw some covering and even post that overall market breadth has improved a bit as we can notice in the numbers above. %Stocks above 21 DMA are 36% vs 8% last week, this shows normality and sanity at least for now. This is a good experience for me and everyone new to markets as well, over reactions do exist and if this happens in future, we probably can state this as something we already have seen in history.
World Markets finally under some pressure, didn’t hold itself at 21 DMA, in fact it is now testing 50 DMA levels post a gap down opening on Thursday. Seeing the volumes, it actually might flip the trend over and this will be one of the few times I can see local markets falling before the world markets follow through on the same lines. Strange times indeed…
But as you know, we are not here to predict what happens, we are here to understand if its time to press on the gas for lumpsum investments or just do our normal SIPs ;)
Let’s get to the meat of this week’s update and see how the Nifty Market Breadth Tables are looking now. Following are the links in case you missed the previous 3 updates :
12th Oct 2024
19th Oct 2024
26th Oct 2024
Nifty 50 breadth somehow has not really improved. Well tbh it makes sense, we didn’t exactly rally per se, we recovered from an over reaction. This table just tells us that its not a good week at all. Its just a better week than the previous ones. We are still in lumpsum trigger territory though.
Nifty 500 breadth has improved. 77% stocks are below 50 DMA vs 88% last week. So now we can say that the over reaction was probably in the smallcaps or midcaps as largecaps have stayed put while the broad indexes have shown some improvement in the last week. Don’t get me wrong, these breadth numbers are still bad, its just not as worse. Relativity in play here ;)
Nifty MicroCap 250, wow!, This index has shown the most improvement in terms of breadth. 68% stocks are below 50 DMA vs 87% last week. This is significant improvements in the numbers and this is where I feel confident in saying a large percentage of over reaction was observed in MicroCaps as this index is the one recovering quite well in a flattish week.
Maybe its a sign of things to come, maybe not. All we can do it read the table week over week and press on that beautiful app on our smartphones to buy more units for our passive investments ;)
[Give it time, these numbers will become second nature once you keep looking at it every week]
So, my fundamental 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, I’ll be taking the following steps as a summary :
Nifty 50 → Go for Lumpsum units over and above SIP if already done.
Nifty 500 → Go for Lumpsum units over and above SIP if already done.
Nifty MicroCap 250 → Go for Lumpsum units over and above SIP if already done.
As always, I’ll be sharing weekly updates with the above tables and it will slowly become apparent when can one be aggressive or when can one continue with SIPs. As long as data gives comfort to invest big, that’s all we need it 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 could 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 one believes 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 :)
[Disclaimer: The information in this article is for informational purposes only and is not financial advice. The author is not a licensed financial advisor. Readers should conduct their own research and consult with a qualified professional before making any financial decisions.]