Nifty Index Investing Newsletter [8th Mar 2024]
What to do in current market scenario ? SIP or Lump sum ?
I learned something this week. Market breadth can take a decent hit without the flagship index getting hurt much. Although its quite easy to say in theory, but to see it in action, that is something for sure.
Nifty50 index is just calmly moving ahead even when the 750 stock market breadth is not performing in tandem. I had a hypothesis that Nifty50 returns will go hand in hand with overall market breadth and hence shared the screenshot of returns as below, this week certainly has proved it wrong or let me be a bit cool & nerdy about it and say “This is a statistical anomaly which ideally should not repeat”.
Anyhow, the market breadth as we can see below took a decent hit with number of stocks down 13% in a month rising to almost 100. Also on March 5th and 6th, more stocks declined over 3% than gained. So definitely the hit is beyond the large caps as Nifty50 stood its ground.
[Please note, we only track 750 stock universe comprising of NIFTY500 and NIFTYMicroCap250 indexes]
World markets going strong, still above 21 DMA. As mentioned in last week’s update, its is a strong momentum and looks to be holding 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 3 updates :
17th Feb 2024
24th Feb 2024
02nd Mar 2024
Notice how Nifty50 is beautifully holding its ground confirming that this is where the money is flowing when midcaps and small caps are taking a hit. Every data point here is the same as last week, no change ;)
But, when we talk about Nifty500, we can see that % stocks now lower 50 DMA have increased from 42% to 51%, Net new highs have taken a solid hit and are down from 224 to 188. To give context, in the past 2 weeks, this number has fallen from 240 to 224 to 188. Clear sign of heat dissipation and a correction in Nifty 500. Although we still don’t see a red cell here. Maybe we see it soon, maybe not. Let’s see how this goes.
Well well well, what do we see here? Red cell 😍 for 50 DMA.
Week over week Lower 50 DMA % has increased from 53% to 65% and net new highs have decreased from 104 to 80. But but but, I see Red, that’s what I’ll use to press on the gas and buy lumpsum for now. Although seeing a red cell in 200 DMA columns will be something desirable but lets not waste an opportunity as you can see in the grid rarely it comes. :)
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]
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 for Nifty 50 and Nifty 500.
For Nifty MicroCap 250 I have already done a normal SIP at the start of the month. I’ll be buying some extra units when market opens monday as I SEE RED :).
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.]