The market remains in limbo again, not able to garner support at the previous day, falling a bit. There seems to be complete lethargy in terms of trying to go up, and while it is difficult to read what is exactly going to happen, there is a chance of a down move on the head and shoulders pattern that remains very open. There are, of course, a lot of people talking about a big crack in the market. So let’s look at the past history of big cracks and scary scenarios. Of course, I’m not trying to instill any fear in you; we will follow our set path of investing. But can a dot-com-like scenario happen? We’ll try to analyze that today in the episode.
Where is the market headed?
Market Overview
The markets today, as you can see, Nifty is experiencing its 6th or 7th session where we have just been around the 25,000 mark—going up a few hundred points, then coming down again—but not really going anywhere. As I’ve mentioned, the left shoulder and the head are ready, and the right shoulder can happen in one day. If that occurs, we are certainly going down much further. Nifty is at -0.34% and is precariously poised above 25,267. This average here is where I will start to feel comfortable about Nifty. Until then, this is sort of skating on thin ice, if you may say so.
Nifty Next 50
Nifty junior is down 0.21% but is looking slightly better than Nifty on that front. It is slightly above the average, not near the bottom pivots. So, Nifty junior looks better than Nifty.
Nifty Mid and Small Cap
The Nifty mid cap is reasonably alright, down about 0.2% today but still holding up. Small caps, as of yesterday, also gained 0.21%, bucking the trend that large caps are showing.
FIIs continue to sell while domestic investors continue to buy, and that’s what is getting reflected in the indices.
Nifty Bank Overview
The Bank Nifty also tried to capture the moving average again but failed, down 0.2% from yesterday, but not really dropping hard. So, Nifty is the only index that is sort of in a gray zone.
Advanced Declined Ratio Trends
In terms of advance-decline, we have nearly equal advances to declines—235 advances to 262 declines—so not too much of a shift towards the red. The good news, perhaps, is that FII outflow for the previous session was much lower than all previous sessions put together, at minus 1,700 crores. DIIs, of course, absorbed all that sales in that front.
Nifty Heatmap
In the heat map, it’s largely red. Mahindra and Mahindra, Trent—these are some of the stronger players of the previous few weeks that have been clobbered today. Infosys is down 2%. ICICI Bank, after yesterday’s run, is down nearly 1%. HDFC Bank is pulling up 1%. HDFC Life, after a big manager has moved out of the stock, is moving up 1.76%. Reliance is up 0.75%. So, we have a mixed bag—no great casualties but also no great trends together.
Nifty Next 50 also shows a mixed bag. ICICI, Pruli, Adani, and Sol Hal are moving up, while Mother Son, Zomato, Zydus, and LTIM Bajaj are holding down. DLF is up, D-Mart is flat, and TVS Motors is down 2%.
Sectoral Overview
In terms of sectoral trends, real estate is gaining some more, building on top of yesterday’s gains at 0.6% today. The one-week gain is now the top sector for this week at 3.1%. Others are muted, except auto, which is losing 1.2% and 1.3% for the day. The other sectors—banking, pharma, FMCG, energy—are all flat.
So, the market is looking for direction, caught between the 25,000 to 26,000 range, stuck here, with all down equally between 1% and 2.5%.
Sectors of the Day
Nifty Auto Index
Stock of the Day
Aditya Birla Sunlife
Stock spotlight is on Aditya Birla Sun Life AMC, which is shooting up 11.5%. All this consolidation of the last month was recovered in one session completely. If you look at the longer picture, this stock has rapidly moved from nearly Rs. 300 to 779. So, look for dips and entry opportunities in the stock if you are a discretionary investor.
Story of the Day
The discussion today is coming back to the potential scenario of either a scare or a dot-com-like crash. Let’s see what the S&P 500 did in the past and the stark similarities with past peaks. In 2000, at the dot-com peak, there was a large collapse, with the S&P index falling from nearly 1,600 to about 800—a loss of roughly 50%. The COVID fall, in fact, was not as severe compared to the January 2000 dot bust, or even the 2008 crisis, which was similar to the dot-com crash.
Households were allocating only 15% to cash versus 48% to equity. The amount of household money going toward equity really picked up, going from 10-15% to nearly 48% in 2000, leading to a market crack. It has now come back to similar levels where equity exposure for U.S. households is back at where it was in 2000. That itself may not be a reason enough for markets to crack, but the fact is that once we hit that point in 2000, we had a lull on the S&P 500 for almost 12 to 13 years.
After the initial crack, we came back up, then there was another crack, and this cycle took 13 years to complete. Eventually, we went up another 3-4x. The point we achieved when household equity was at a high level was an indicator of households being overly exposed to equity or overbought at that time. In 2020, when equity allocation peaked, we saw a sharp 32% correction on the S&P 500, with euphoria at an all-time high.
Currently, one could argue that we are in a sort of Goldilocks scenario—nobody is pinpointing what could go wrong. Every analyst states that the market is very expensive, yet how things will pan out is something nobody can really forecast. The only history lesson we can learn is that whenever people become overconfident in the markets and whenever they are overbought, some event may happen that brings down that euphoria to normal levels, allowing it to build back up again.
If we consider that point of view, we are somewhat in a scenario where we have gone into blind confidence that the market has to keep going up. That is never a good sign. You could say that we felt the same at 20,000, we felt the same at 22,000 for Nifty, and now we feel the same at 25,000. Who knows? This may carry on until 30,000 or 35,000.
From an absolute perspective, trying to call that number is futile. No one can really predict it. Some people will obviously be right. If 100 people claim that a specific point will trigger a market fall, a few will indeed be correct, but that’s just chance. You really can’t call it because the money base in the world is continuously increasing. There is no absolute value you can ascribe to anything; what was good at 20 times price earnings 20 years ago might now be 50 times.
There’s no real way of measuring value because everything is up. All markets are up, all asset classes are up. The only evaluation we can do is subjective—if everyone around us is talking about equity, it may be extremely overbought. In terms of action, only two things need to be done: stay invested and stay diversified.
Staying invested means not jumping in and selling everything to buy into markets. Keep gradually chipping in money; invest more every three months. If you think you’ve missed the rally, don’t sell a large chunk of your other assets to bring it into the markets. That is a danger zone.
Gradually entering the market will allow you to average in, and when you look back after three, four, or five years, you’ll realize it didn’t make much difference that markets were high at that time. If you had gradually invested pre-COVID levels, you would have seen positive outcomes today. Always consider the long-term outcome rather than immediate results.
If the markets crack due to global reasons, the Indian market will rebound because we are inherently growing strongly. Focus on asset allocation and diversification—beyond equity and within equity, having exposure to large-cap, mid-cap, and small-cap. If you follow these two strategies while gradually investing your money, there’s no need to be fearful.
Avoid forecasting blindly; keep investing consistently, and you will likely find yourself in a good position in five years. Given this scenario, how are you viewing the markets? What strategies are you considering? Many people have reached out to me about sitting on cash and when to deploy it. If you’re uncomfortable, it’s okay to take some cash out.
It’s fine to have 30% in cash if it allows you to sleep well at night. Don’t race against others; focus on what feels comfortable for you. Maintain asset allocation, diversify, and follow a plan that allows you to build back up if something goes wrong. That should be the real key to your success in the market.
