How are the Markets Looking ?
Good evening and welcome to the Weekend Investing Daily Byte of 18th January. Yesterday, we witnessed a significant decline in HDFC Bank, and today was another day dominated by the bank’s downward movement.
The market opened more than a couple of hundred points below, but there was stability after the first hour.During the first hour, it appeared that the market would break through the support like a hot knife through butter. However, it found support at a crucial point, and now we find ourselves dangling at this support level.
Nifty Heatmap
The heat map showed that Nifty was dominated by HDFC Bank, which fell by 3.3%, triggering a disturbance in the overall sentiment. NTPC, Eicher, LTIM, many shares dropped today. It is important to note that corrections are common, especially when the markets have been performing strongly. While HDFC Bank has had a significant impact on sentiment, it is essential to understand that fluctuations are a natural part of the market cycle.
Sectoral Overview
In today’s market, pharmaceuticals took the lead with a 1% increase, followed by PSU banks, which bounced back smartly with a 0.8% increase. Real estate also saw a gain of 0.7%. On the losing end, metals suffered a setback. Energy stocks and consumption stocks both experienced a decrease of 0.8% and 0.7% respectively.
The Chinese markets have been in a terrible situation, with Hanksang in Hong Kong dropping to 25-year lows, dropping 10% in January itself. As we compare ourselves to these markets, we need to acknowledge that we are indeed fortunate to have an uptrending market. Many other markets have not seen an uptrend in decades. This highlights the importance of not taking our market’s growth for granted, as there may come a time when we experience a prolonged period of no growth. It is crucial to be prepared for such scenarios.
Mid-Small & Small Cap Performance
As for small caps, the first hour was a bloodbath, with the index dropping around 3-4%. However, the market made a sharp recovery in the second hour and stabilised at yesterday’s level. The mid-cap segment also mirrored this pattern, coming down to retest a support line before rebounding.
The positive aspect of this volatility in the small and mid-cap space is that weakness is gradually being shed. As weak players exit the market, there is a chance for new highs in the coming days. However, if large caps continue to decline, there is a possibility that mid and small caps will also be affected.
Nifty Bank Overview
The Nifty Bank is currently just above a significant gap. It is likely that this gap will be filled at some point in the coming week. However, it is important to note that I am not particularly optimistic about the Nifty Bank chart at this moment.
Highlights
Real estate witnessed a sudden decline but quickly rebounded. PSU banks also saw a sharp decrease but managed to recover, gaining more than 3% during the day. Overall, the market is still in good shape.
Global News
On the global front, the S&P 500 in the US has been hovering around its previous top made in 2021, without breaking out for several days. If it fails to break out in the next one or two sessions, there is a chance of a double top formation, leading to a potential fall in the Indian markets as well.
The recent victory of Trump Swami in Ayova has caused significant pain in the Chinese market as allocations to the Asian region are being dumped. Over the last two sessions, more than $5 billion worth of stocks have been sold off in various emerging markets. This indicates that the decline in HDFC Bank is not solely caused by foreign institutional investors (FIIs) but also due to a region-wide sell-off.
On the domestic front, institutional support and retail participation have helped mitigate the impact of FIIs. However, continuous significant sell-offs by FIIs can still affect market sentiment and lead to a decline.
Overall, there is no need to worry. It is essential to remember that market fluctuations are part of the game, and temporary declines should not be a cause for concern. If a one or two percent drop in the market causes worry, it suggests that one is overexposed to the market. In such cases, it is advisable to withdraw some funds and invest in less volatile instruments such as gold to hedge risks.
Equity exposure should only be maintained to an extent where even a 10-20% fall will not disrupt one’s sleep. If worry and sleep disturbance become a part of the investment journey, it may be time to reevaluate the allocation towards the market.
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