Nifty Index Investing Newsletter [7th Jul 2024]
What to do in current market scenario ? SIP or Lump sum ?
Another good week for Nifty 50, in strong momentum. To give some context, Nifty 50 has ended higher for 5th consecutive weeks so week over week, we are seeing outperformance and its a really good rally for passive investors. FYTD (Financial Year Till Date) return is 8% for Nifty50 which is quite awesome considering we are only 1 quarter in the FY. Nifty generally performs 12-15% on CAGR basis in long term, so if we believe in using past performance as an indicator of future performance, we might move a bit sideways in upcoming months. But hey…., Let’s not predict the markets, let’s track them and see what opportunities come up.
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]
Last week Index moved a bit higher but I had a concern that market breadth didn’t improve much overall. This week all seems well. Market breadth has indeed improved. For context, 76% of stocks were above 50 DMA by the end of last week, this week its up towards 84%. So that’s a significant improvement along with Nifty50 scaling ATH again. No pessimistic viewpoint today, let’s just enjoy this momentum while it lasts :)
Last week world markets moved a bit sideways and we saw it taking support at 21 DMA. Good news, support worked and world markets this week are back on track and it seems it does have some fuel left in it towards the upside.
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 :
15th Jun 2024
22nd Jun 2024
29th Jun 2024
Market Breadth for Nifty50 was already too good at the end of last week. So we can’t see a significant improvement here unfortunately, but look at it this way, Its already at peak optimism, so even if it sustains this here, its a big achievement from a breadth standpoint. And that is exactly what the index has done. Market breadth has not deteriorated week over week which indicates strength.
Significant improvement here for Nifty 500. 84% of stocks are now above 50 DMA vs 76% last week. Net new highs have also improved from 180 to 222, so a big jump there indicating that a lot of stocks have moved past their pivot points (with decent volumes hopefully). Optimism here as well, no red cell, SIP all the way…
Similar story for MicroCaps as with Nifty 500. 84% stocks are now above 50 DMA vs 75% last week. Net new highs have increased from 69 to 116, indicating a lot of money coming in microcaps. Just a general thought here though, Microcaps do run faster but they have a tendency to get injured regularly (running analogy), so when the overall market moves sideways, you might see this index being hit a bit harder as it has smaller firms at the end of 750 stock universe spectrum.
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 → Keep the regular SIP. No lumpsum required.
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.]