Nifty Index Investing Newsletter [9th Nov 2024]
What to do in current market scenario ? SIP or Lump sum ?
For this week, I wanted to make a change in the way we read Nifty 50 Chart. Its not just about 21 DMA and 50 DMA anymore, we will start looking at 200 DMA i.e. 200 Day Moving Average of Nifty as that has served as a crucial support for some time now. For context, 200 DMA has served as support since ~18 months. So if the rally has to continue, this support needs to kick in and we should ideally get a reversal from this last support. As you can see in the chart below, 200 DMA stands at 23,532. If this level breaks with poor market breadth and higher than average volumes, then I’m afraid we might be in for a painful timeframe not sure how long. For now, I won’t be reading much into it, Let’s change our mentality to bearishness once 200 DMA is breached with higher than average volumes.
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 frankly has been rocky for a couple of weeks now. So for a couple of days it did feel normal when %stocks above 50 DMA went above 30% which is my benchmark of healthy market. Although by the end of the week, we came back to under 30% level. What worries me more is that the volumes for Thu & Fri trading session were higher than average so the selling is strong and I don’t see this selling to be just a random day post upwards movement. Let’s see if the breadth remains rocky in the upcoming week. Day by day we are getting close to 200 DMA on Nifty so we should ideally see some buying kick in and market breadth should show some sort of reversal before the flagship index starts its move back up.
I guess we all have an idea what moved the world markets this week. TRUMP as usual Making America Great Again!!!! Just look at the volumes for past 3 to 4 trading days, see how they match with election results. Volumes are strong, above average and indexes are pushing for new highs. I secretly am hoping for this momentum to flow in the Indian Markets as well but for the past month there is a huge disconnect between local and global momentum, it felt like it was going in a similar direction, but we need a catalyst to get the momentum back in the Indian Markets. Long story short, Global Markets are aiming to become Great Again!!!
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 :
19th Oct 2024
26th Oct 2024
02nd Nov 2024
Nifty 50 Breadth has improved directionally, 86% stocks were below 50DMA vs 80% this week, so marginal improvement which I don’t think is good enough now that we have seen in the charts higher than average volume selling on Thu & Fri trading sessions. Net new highs have gone down week over week for the past few weeks which is to be expected seeing the trend on the chart. So we are still in lumpsum territory here, nothing new to add.
Nifty 500 Breadth is quite similar to what we had last week, not much improvement or worsening. It just stayed still…. which to be honest is not a bad thing, that might mean this is where most of selling is drying up (me trying to be hopeful). Let’s not think much here, we’ll see when the numbers start to improve and not read much into it. For now, we are in lumpsum territory if one would like to buy some units.
Last week, Microcaps showed the most improvement. This week they have sustained this improvement. Numbers are not better but not worse as well. Not sure how do we read this more than that. Net new highs as expected should have decreased as its a lagging indicator and in the market environment we are in, making new 52 week highs is rare in any index for now. Here as well we are in lumpsum territory if one would like to buyup some units.
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 → Go for Lumpsum units over and above SIP if already done.
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.]