Nifty Index Investing Newsletter [1st Jun 2024]
What to do in current market scenario ? SIP or Lump sum ?
This week just erased whatever gain nifty had in the previous week. For context, last week, Nifty was around ~22,530 and scaled an ATH this week of 23,110. It’s finally back at ~22,530 showing true volatility near the election results. Just seeing the chart below shows this week was full of red candles. For traders, this is a definitely tough environment as this kind of volatility makes decisions tough and a lot of stop losses are hit even on healthy charts. That’s volatility folks…
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]
Comparing market breadth week over week, numbers have certainly taken a hit. For reference, 66% of stocks were above 50 DMA by the end of last week, its now under 50%. So that’s a significant movement which needs to be considered as on an index level, we are not that bad, but the breadth indicates volatility has hit more outside Nifty50. Let’s see how what the passive grid tables say later to see how can we capitalize on this volatility for our lumpsum investments…
World markets dropped a little this week, but did take support at 21 DMA as we can see on the chart below. This is kind of like Nifty50 as well as we can see a similar theme of 21 DMA support. The only difference being that we have higher than average volumes near that support, but for world markets this doesn’t seem to be the case. Apologies if this seems too technical, but understanding moving averages and support it provides is a great concept to slowly add to skill as it improves the way we interpret the market conditions as an analyst. Feel free to give feedback in case you would prefer a less technical explanation instead :)
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 :
11th May 2024
18th May 2024
25th May 2024
Just like we mentioned for Nifty 50, this week erased the gains from previous weeks rally and that reflects in the above grid as well. We are back to similar % numbers from the week before previous one. For reference, % stocks above 50 DMA gained from 50% to 64% and are now back to 52%. So we can see similar movement in %s as the charts do too. No red cell noticed here, so continuing my SIP still for Nifty50.
We mentioned last week that even though Nifty50 rallied a bit, but market breadth for Nifty500 just held its ground without any % improvement in numbers. And one bad week just dropped the numbers from 66% (above 50 DMA) to 52%. Net new highs have also decreased from 155 to 139. It would be interesting to see how the market breadth behaves in the upcoming week as its the results week and market might be volatile just like previous week. In which direction, we’ll have to see. Anyways, no red cell here. So continuing my SIP here too.
MicroCaps have taken the biggest hit (as expected). As mentioned in last week’s newsletter, numbers felt like they were on shaky grounds and one volatile week exposed the strength as we can notice in the numbers. Net new highs are down from 63 to 51 and % of stocks above 50 DMA are down from 65% to 43% and a red cell event has been triggered 😍.
I know it seems weird, but these are the times when I can confidently push lumpsum investments on top of the SIP I already have.
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 → Going Lumpsum here (over and above the monthly SIP) as the grid shows red :), FINALLY 😋
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.]
Great read!