Nifty Index Investing Newsletter [12th Oct 2024]
What to do in current market scenario ? SIP or Lump sum ?
Post the elevator fall, markets this week moved in a narrow range around the 50 DMA levels which in a way its good and shows some strength around those levels. What would be interesting to see is if the index recovers back to its high level from here. Would call this week as a sideways movement week…
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]
Market Breadth at the start of the week took a major hit when the %stocks above 21 DMA went to ~15% which happens rarely. This was probably one of those days when I would have liked to add some units for my long term Mutual Fund investments. If you remember, last week I did mention that when this %stocks above 21 DMA goes below 20%, we get some kind of a reaction and buying pressure kicks in and voila… This week happened the same. History doesn’t repeat, but seems to be rhyming to me for now ;)
Other than that, breadth seems better than end of last week with ~45% stocks above 50 DMA vs ~40% last week. So this sideways movement if is paired with improving breadth in the upcoming week, we might resume the rally we were in. Let’s see how this goes.
World Markets are going solid, singing their own tune, above 21 DMA and 50 DMA in a trend. So no sign of worries globally that might sink in our local markets. To be honest, right now World Markets and our markets are out of sync with Nifty50 moving around 50 DMA. Seeing World markets in a trend, that gives hope for Nifty 50 to resume back in a similar trend and not break further.
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 :
21st Sep 2024
28th Sep 2024
05th Oct 2024
Nifty 50 Breadth has taken a hit this week finally with %stocks above 50 DMA declining to 52% from 70% last week. This delayed action was weird but all good, we are still not in lumpsum trigger territory but close to being there. Good to see breadth catching up the charts behavior though, gives confidence in reading the markets accurately.
Nifty 500 last week gave a lumpsum trigger. This week same thing…
Breadth has not really improved, in fact is similar to last week with no directional change in percentages. Only change one can observe is change in net new highs, its 165 vs 174 last week. This is expected as that is a lagging indicator so with trend being sideways net highs will go down.
Nifty MicroCap 250 infact has improved unlike Nifty 500 week over week. Maybe it was a sharp reaction last week in this, but numbers have moved enough to notice it. ~55% stocks now are below 50 DMA vs 65% last week, so definitely would call it an improvement although still not enough to get it out of lumpsum territory.
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. Awaiting trigger.
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.]