Nifty Index Investing Newsletter [5th Oct 2024]
What to do in current market scenario ? SIP or Lump sum ?
Markets take the stairs up and the elevator down. This statement stands true for the kind of week we had. Thank god we had a national holiday in between cuz this week we got sold hard with higher than average volumes and the Index didn’t take support at 21 DMA as we can see on the chart. For now, 50 DMA is a support which should kick in, but if this breaks with higher than average volume, we might be in a correction or a consolidation post this rally. Look closely, 50 DMA support saved this rally around 5th and 6th Aug, so 50 DMA does help with some sideways movement when steep movements occur. Let’s see how it goes…
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]
Last week I mentioned that the rally in Nifty 50 might be a worry as only the large caps seemed to be in focus and the whole breadth was sideways or even declining for smallcaps. This week that fear is reality. Breadth has worsened too quickly too fast. For comparison purposes, %Stocks above 50 DMA have declined from 57% to 40% in last 4 trading sessions. This is significant movement and we can already see breadth worsening in the table as showcased above. Generally when % stocks above 21 DMA go below 20%, we get a bottom formation i.e. some kind of buying pressure kicks in, but as we can see, we still have some room to go there, so the fall might not stop here if we are to believe historical data. (*Conditions Apply → IF WE ARE TO BELIEVE)
World Markets moved sideways to my surprise. I assumed that Nifty is following a correlated world market movement and seeing this makes me a bit more worried. World markets are stable, above their averages and not even trying to take support to continue the rally. Volumes are good, Somehow the fall we had is local and not global it seems. With the current globalized economy, correlation should stand between local and global markets which doesn’t seem to be the case here.
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 :
14th Sep 2024
21st Sep 2024
28th Sep 2024
Nifty 50, even though it has taken punches to its chin 4 days in a row, it stands all with its trend and no trigger for lumpsum yet. Don’t get me wrong, breadth has worsened but not enough to go and buy loads of units. For comparison, %stocks above 50 DMA have fallen from 86% to 70%, We ideally need %stocks below 50 DMA to be 55% or above for lumpsum trigger to occur as we can see on the grid. So we might get this trigger post a bit more fall which I hope doesn’t happen as we are already at 50 DMA support which if kicks in we will be back in an uptrend without pressure.
Nifty 500, well well well, Look what we have here. This is where the hit has been heavy, 60% stocks were above 50 DMA last week vs 43% this time. This gives us the lumpsum trigger as we can see on the grid. The Index as a whole has worsened and one can start deploying cash here it seems, well I certainly have. Net new highs have worsened from 192 to 174 as well. Do remember though its not like we only get one month of triggers, although that has been true in the past year or so, but in early part of 2023, we had 4 months of underperformance from the index where if you went all in to buy in the first month, it would have been painful to not buy when more fall comes ahead. So always buy in tranches and not have “All-in” poker mentality yet as its just a first fall. With time and experience, You’ll know when to push all the chips in.
Nifty MicroCap 250, smallest firms, even smaller than smallcaps, have taken hit similar to Nifty 500. Tbh its actually worse than Nifty 500. %Stocks below 50 DMA are at 65% vs 49% last week. Its way beyond lumpsum trigger and I have certainly bought some units on this seeing this data unfold. Last week it was maintaining some strength as we mentioned looks like this week it decided to take a break from the trend it was in. Now we just have to see whether its a sick leave, small vacation or a sabbatical. I really hope this was just a small vacation, a sabbatical would hurt a lot of portfolios if indexes were allowed to take one.
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.]