Nifty Index Investing Newsletter [10th Feb 2024]
What to do in current market scenario ? SIP or Lump sum ?
The past week can be segmented into “sideways movement” as the market didn’t really move in a direction. Breadth supported for the initial couple of days towards the bullish side with %stocks above 50 DMA rising from ~65% to ~71% and then consolidating back to 62% as one can notice in the table below.
[Please note, we only track 750 stock universe comprising of NIFTY500 and NIFTYMicroCap250 indexes]
Anyways, despite all this, Nifty is still holding above its 21DMA level indicating some pressure in its uptrend for now. 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. If you remember I shared the table last week and mentioned that I’ll be sticking with the planned SIP for now. Following are the links in case you missed the previous updates :
30th Dec 2023
06th Jan 2024
13th Jan 2024
20th Jan 2024
26th Jan 2024
03rd Feb 2024
Notice how the index is behaving week over week. In the last newsletter, there were 34% of stocks below 50 DMA, it has now expanded to 40%. I know what you’ll say here, that we are only talking about 50 stock index, but its about the behavior of numbers that I’m trying to show here. You can notice behavior in 500 stock index as well in the below table:
As mentioned for NIFTY50, we can see a similar trend here 31% stocks were below 50 DMA last week, and now we are at 36%. And to all mathematicians reading this, 5% of 500 stocks are 25 stocks, so there have been stocks moving below key levels and if they lose momentum, its just a matter of time they break 200 DMA as well.
Notice a similar thing happened in Oct 2023 (last day of Oct is recorded in Nov 2023 row). In Oct’23, stocks corrected a bit and we saw a rise of stocks being below 50 DMA (~68%) and then we invested lumpsum in early Nov. To our luck (yes, luck is an important commodity for an investor), it was a small correction, not sure if we can even term that as a correction, but momentum came back and market stabilized before moving to ATH levels.
For NIFTYMicroCap250, change as been big, last week %stocks below 50DMA were 31%, its 41% now, indicating that this index was hit the most, and it makes sense as this index comprises of companies that are much smaller and prone to weird swings in sideways movements and consolidations, but also is most rewarding in good times ;)
So it looks like market might be trying to tell us that stocks are breaking key levels and loss of momentum at least at market breadth level might be incoming. As always, not trying to predict what happens, just trying to be ready to buy lumpsum when the time comes.
[Give it time, these numbers will become second nature once you keep looking at it every week]
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 (previous rolling month)
New Lows → # of stocks making New 52 Week Lows (previous rolling month)
Net New Highs → New Highs - New Lows (previous rolling month)
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 keeping the SIP train on track and DO THE MONTHLY SIP for this particular month.
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.]