Nifty Index Investing Newsletter [26th Oct 2024]
What to do in current market scenario ? SIP or Lump sum ?
See the blue line ? Yes the one in the following snip, its the support I was hoping Nifty can bounce back from, well its failed this week, and we broke heavy. Social media is full of memes of market falling and some people even going ahead to say “its just the beginning, we will fall 30% more ahead” bla bla bla. Well, for now, we have fallen 8% from ATH and supports like 21 DMA, 50 DMA and even 100 DMA have been broken. This does indicate bearishness although not sure if we can call it a bear market. Let’s see where the flow takes us…
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 is celebrating valentine week in October. Red red all over. This is what seems like an oversold territory where I feel the selling is probably overdone. Only 8% stocks above 21 DMA ? That’s too low and we should see some sort of short covering in early part of next week, not trying to predict but the data seems at one extreme which is not something usual. ~12% stocks are above 50 DMA, last week this number was 42%, this is how much last week’s action has been harsh. So from a breadth perspective, I am hopeful we should see some better numbers by the end of next week.
World Markets this week took support at 21 DMA. One good thing here is that atleast there is some pressure on the chart unlike previous couple of weeks where Nifty has been breaking and World Markets have been solid. Will look forward to see if world markets react to the geopolitical news and also flip over like our local markets. Looking forward for next week to be really honest.
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 :
05th Oct 2024
12th Oct 2024
19th Oct 2024
Nifty 50, >80% stocks are below 50 DMA. Look at historical numbers in the grid. This feels like an over reaction and its a good time to go lumpsum I feel. People are fearful and this is the time to deploy cash if you have. Not saying markets will reverse from here, we can get triggers for 4-5 months on the trot as we got in early 2023 Jan-Apr. Its always good to be ready for these phases and accumulate units.
Same story with Nifty 500, ~90% stocks below 50 DMA, probably overdone. For instance, this number was 59% last week and its has rose to 88% in 5 trading days. Just by seeing this reaction I can say odds are this is overselling in fear and we as people sitting on sidelines should take note of this behavior and buy when there is blood on the streets. Numbers next week should ideally be better than what we are seeing right now.
Nifty MicroCap 250 has been hit the hardest. This index was just on the verge of lumpsum trigger and this week its bled the most. 87% stocks below 50 DMA, similar reaction to what I had for Nifty 500, 54% last week vs 87% this week. Probably overdone and we should see healthy stocks stabilize a bit when markets reopen.
(Focus on *Probably)
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.]