Nifty Index Investing Newsletter [20th Apr 2024]
What to do in current market scenario ? SIP or Lump sum ?
Nifty started on a reddish note, declining more than 1% in a single session. Selling pressure continued breaching 21 DMA and 50 DMA levels as well. Market Breadth is indicating a sharp move on the bearish side for now. E.g. % of stocks above 50 DMA have reduced from 61% to 50% this week, % of stocks above 21 DMA have reduced from 84% to 59% this week. So we can certainly notice a sharp reaction from a lot of scrips this week and that will affect many investor portfolios.
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, I only track 750 stock universe comprising of NIFTY500 and NIFTYMicroCap250 indexes]
Last week we discussed how World Markets are testing the 50 DMA level after going below 21 DMA and not taking support there for reversal. It now seems that 50 DMA is out of the picture and we are looking at 21/50 bearish cross as well next week if this selling pressure continues. Selling pressure in world markets might add some pressure in our local indexes as well as generally world markets are correlated.
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 :
30th Mar 2024
06th Apr 2024
13th Apr 2024
Nifty50 is holding on for now, but one more bearish week could take it into the red territory that makes us buy lumpsum. For now we can notice 14% more stocks are below 50 DMA than last week (54% vs 40% week over week). So certainly, the flagship index is showing a reaction and next week might give us a juicy opportunity to start buying lumpsum. Waiting to see how it plays out…
I hope we have established up until now that net new highs are a lagging indicator, so would request all to not read much into it as its a supporting variable and it will generally decline ones the market sets in. It won’t immediately show the movement you are looking for after a bearish week move.
With that being said, we can notice that Nifty500 just like Nifty 50 has 14% more stocks under 50 DMA than previous week (50% vs 36% week over week). So the trend is the same and this index might turn red as well to give a lumpsum opportunity soon.
You know something weird… The index which should have been the most volatile HAS NOT BEEN. Microcaps have held on and the index has not been affected much when compared to Nifty 50 and Nifty 500. This is certainly weird and I think something we should definitely track to see as only large caps seems to get a sell off right now. Will keep tabs on this to give an update later…
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 → Keep the regular SIP. No lumpsum required.
Nifty 500 → Keep the regular SIP. No lumpsum required.
Nifty MicroCap 250 → Keep the regular SIP. No lumpsum required.
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.]