Nifty Index Investing Newsletter [16th Mar 2024]
What to do in current market scenario ? SIP or Lump sum ?
Feels like the valentine week is delayed by a month for the markets. Red all over the market breadth this week. Mid caps, Small caps and Micro caps broke hard, pretty hard and made headlines all over the financial world. Its pretty rare for small caps indexes to fall more than 2% on 3 consecutive days and on 13th March, it fell 5% in one day.. Just do the math, One week has reminded people what small caps are, what liquidity is and what can happen even in a strong market scenario such as ours.
That being said, Small caps have rallied a lot this last financial year and give returns of over 60% already, so this is a small correction.
Unlike Last week, Nifty 50 took the hit this time as per the market breadth and fell more than 1.5% on 13th March as we can notice in the grid below. Also notice how one week can change the %s of stocks below a certain DMA. Is it oversold now? Should one buy ? 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, we only track 750 stock universe comprising of NIFTY500 and NIFTYMicroCap250 indexes]
World markets are still going solid, so this tells us the correction we are facing can be attributed to local effects, certainly not global. World markets stay solid above 21 DMA as we can see and would like to see it take support here to keep the global trend intact.
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 :
24th Feb 2024
02nd Mar 2024
08th Mar 2024
As I mentioned, Nifty 50 did take a hit this week, although not as brutal as others, we still can see week over week that % of stocks below 50 DMA has increased from 34% to 51%, still not in the lumpsum red zone, so will be sticking with SIP here and not add anything if SIP has been done at the start of the month.
Nifty 500 comprises of Nifty50, NiftyNext50, NiftyMidcap150 and NiftySmallcap250. So this index is bound to show a significant change.
Week over week, we can see that % of stocks trading lower than 50 DMA price has increased from 51% to 73% which is quite significant and net new highs have dropped from 188 to 124. So Nifty 500 has taken a definite hit this week and one can start thinking about adding few lumpsum units right now if one is interested. Although will recommend to not be too aggressive right now.
NiftyMicrocap250, well, Smallcaps were the star of the news this week, but this index took a big hit. Since not many people invest in these scrips via MFs or in the market as liquidity is low in microcaps, week over week, % of stocks below 50 DMA has gone from 65% to 84%. And I have a gut feeling that many of these stocks might shift to below 200 DMA. Already % stocks below 200 DMA have gone from 28% to 44%. So we can already see it happening. Net new highs have halved, coming down from 80 to 41.
I added NiftyMicrocap250 index fund last week and this week as I noticed red which gave me comfort. I’ll keep on adding more if these metrics go in the red as I believe in the India Story and if India has to become a top 3 economy, all these indexes need to make new highs for this to happen.
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…
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.]