We are currently witnessing a correction in the markets. The markets opened down from yesterday, had a sharp bounce in the very first hour, and then towards the end gave up some of the gains of the day. Overall, nothing special in terms of direction; the market remains down. Some bounce is there, and some sectors have propped up today, but largely the correction is in play and it will probably continue.
We’ll look at different segments of the market and where the cracks have opened up
Where is the market headed?
Market Overview
We’ll look at different segments of the market and where the cracks have opened up. Please read the disclaimer; it is in your interest. And do subscribe to the channel as well. In terms of where the market is headed, you can see here there was an attempt to recover from yesterday’s drubbing. We went halfway through yesterday’s candle, but in the end, dropped down back to nearly where we opened. Overall down 0.15%. So, net net no loss for the day, but a bounce has occurred, and maybe now we resume the downtrend from the next session that is now likely to be in place.
The nearest sort of support points are this pivot near 24,000. As we had been mentioning, this head and shoulders pattern has a target of somewhere near 23,400, around this high of the election day candle. There is no guarantee whether we reach there or whether we will go further down or not. The 200 DMA is also somewhere near 23,323,400. This is the 40-day moving average, so a confluence of support points near this 23,300-400 level, the 200 DMA, and the HNS target seems like a good target to condition your mind that we may be going there. So let’s not get shocked if we do reach that point; we will think about further downsides once we get there.
Nifty Next 50
Nifty Next 50 again showed a similar pattern. It opened down, went up a little bit, but then collapsed again, not able to survive. Nifty Next 50 is already at the election day high, meaning it has declared four months of no gains. Nifty is slightly better than Nifty Junior, and because Nifty Junior has done phenomenally well versus Nifty, it may fall a bit more than Nifty, of course, as this downtrend continues. We have come almost 8000 points on Nifty Junior, which is not insignificant. So, there may be some bounce again; let’s see where we go on this.
Nifty Mid and Small Cap
The mid-cap part of the market saw some bounce; we actually gained half a percent, which is not much, but we are somewhat in this congestion zone of support. A good bounce from that support point is welcome, and I will take half a percent any day right now. The same case applies to small caps, where almost a percent was gained. We had almost reached 1.5% or more, but then some give-up happened towards the end here. This particular range where the support is has played out quite well. No doubt that the entire market, all segments, are in a downtrend, and these are only small bounces.
It will need to revisit the whole structure of the uptrend again at some point and then start to go up from some base that it forms. Right now, it doesn’t seem like we can immediately fire and make a V-shaped recovery. That kind of a feel is not there in the market.
Nifty Bank Overview
Nifty Bank also displayed similar behavior; it opened lower, went a percent or so high, and then collapsed back. Net net, no gain, no loss here as well.
Advanced Declined Ratio Trends
Momentum trends in the market were reasonably even, slightly favoring advances. But when you have a bounce—a dead cat bounce kind of a situation—you will see this. That is not so meaningful. You can see most of the stocks were within the plus 5% or -5% range. Very few were the outliers, which will always be the case. We saw 282 advances to 217 declines. FIIs continued the sell process at 4000 crores, while DIIs continued the buy at 5800. DIIs pressed on the pedal more on the 22nd of October when most of the fall was coming. So it looks like there is good support coming from domestic money, but sentimentally the market is playing along with the FII flow.
Nifty Heatmap
The heat map was mixed today. You had Bajaj Finance, HDFC Bank, IT stocks, Coal India, Bajaj Auto, all these up, while State Bank of India, ICICI Bank, Axis Bank, Mahindra, NTPC, Sun Pharma, and L&T were all down. Reliance was down 0.36% as well. In the Nifty Next 50 space, capital goods stocks like Siemens and ABB were hammered, down 5%. Dmart, Naukri, and Zomato also faced declines. Zomato, incidentally, increased its commission charges, causing the stock to rise 3%. Varun Beverages, on the back of good results, was up 5.75%, and JSW Energy was up 2.5% along with Mother Son. There were some relief rallies in PSU banks that had been thrashed a day earlier. So, it was a mixed bag on the Nifty Next 50 front as well.
Sectoral Overview
Sectoral trends showed that only IT stocks stood out with a 2.4% rise; PSU banks, as I mentioned, just saw a bounce there, and FMCG stocks also had a slight bounce at 0.2%. The rest were in the red. Pharma surprisingly got thrashed today, down 1.6%. Public sector enterprises continue to reel down. Real estate and public sector enterprise stocks have been the biggest losers in the last week, along with autos. Over the last month, real estate, FMCG, and autos have been the biggest losers. The private banking space, which we were more confident in, was down 0.3%. But overall, in the last three months, it has not moved much, and for the last twelve months, it is still a laggard compared to the entire market.
Sectors of the Day
Nifty IT Index
Within IT stocks, the second rung IT stocks were doing quite well. Some of these stocks like Persistent, Coforge, and Emphasis were rallying very hard. The entire IT universe was up 2.3%.
Stock of the Day
Deepak Fertilizers
In the stock spotlight, Deepak Fertilizers raced up 16% today. This stock has been ranged since the beginning of September, within a range of 950 to 1120, and it looks like it wants to go up. Whenever stocks are strong in a weak or bouncy session and making new all-time highs or near all-time highs, I think one should take note of that. It has been a phenomenal journey for Deepak Fertilizer over the last four or five years, having risen from Rs. 50 to Rs. 1100. That’s an amazing sort of run for this stock.
Story of the Day
We are examining the performance of large, mid, and small caps in 2024. Large caps, as denoted by the CNX 100 index, are up 15% so far, mid caps are up 22.9%, and small caps are up 24%. All this is very nominal; there’s nothing exceptional about it. You can say that even though small caps reached 32% and mid caps reached 30% and large caps reached 24%, right now the gains are nothing exceptional in my view.
So, let’s look at the battered stocks of 2024. Within the large-cap space from January 1st till now, we’ve had Adani Gas as the top loser at 30%. IndusInd Bank, Sri Cement, and Nestle are the only four stocks with double-digit losses for the calendar year. They may have lost more from their peaks, but from a calendar year perspective, these are the only four double-digit losers. Otherwise, there isn’t much significant loss here at all; just about ten or twelve stocks have really lost. We need to see the context: a lot of folks are crying hoarse about the correction, and if you look at just a ten-month period, there are only four stocks that have really gone into double-digit loss in the large-cap space. You can see that Adani Total Gas, IndusInd, Sri Cement, and Nestle have consistently declined compared to the large-cap index.
Within the mid-cap space, Bandhan Bank is down 27%. Tata Alexei, Adani Wilmar, and Bank of India are also underperformers. Again, just five stocks are down 11% or so from the start of the year. There are more losers when we look at the highest points, but not too many based on the calendar year. From the very beginning of the year, some of these stocks have been underperforming. Most of the strategies, at least the momentum strategies, will not even come close to these stocks, so you would see that none of these stocks ever entered into our portfolios.
Within the small-cap space, Z Entertainment is down 56%, RBL Bank is down 41%, and several others like Maharashtra Seamless, Equitas, Small India Bull Housing, Jeevans, SFB, Sun Pharma Advanced Research, IFL Finance, and Gujarat Ambuja are down 20-30%. Many stocks are above 20%, with a lot of stocks in the 10-20% range. There’s significant pain in the small-cap space for sure.
Going forward, you can see that several of these stocks dropped early in the year and stayed low, while others were consistently going down. Many of these stocks, again, were not picked by any of these strategies. You were saved from this continuous agony. There may have been stocks that went up and are now coming down, and we may have lost profits on some of them, but that’s part of the game we are playing.
So, the importance of having an exit plan cannot be overstated. I can keep repeating this, and it’s still not enough because most people do not have a plan to start with. You should ask yourself: why did you buy the stock, and when will you sell the stock? These two questions should be clarified in your mind. If you bought this stock for XYZ reasons, and as long as those reasons are true, you’ll hold on to the stock regardless of price. If you are not a price-based investor, or if your decisions are based on price, then what are the conditions of price that will make you hold those stocks?
If you don’t have a plan and you heard about the stock at a party, I’m sorry, but your portfolio is doomed. There’s no way you will make money in the markets in the long term if that’s your strategy. So, get out of the tips business. Stop trying to apply someone else’s thesis without knowing if that person is still invested. A lot of folks mirror large investors, which is difficult because you don’t know their psychology, how they invested in that stock, or at what prices. The stock may have gone up, and you’re investing now; what is that person doing with their position? They might have been sitting on profit and are gradually selling off as it comes down. You will never know.
Following someone blindly or getting recommendations from here or there is not going to help in the long term. I have been in this business for almost 30 years now, and I have not seen anyone without a plan make money. Investing or trading, whatever it is, requires a business-like approach. No business survives without a plan. If you start a business without a plan, it will shut down, and the same will happen to any portfolio that goes on without a plan.
So, do have a plan in mind, whatever it may be. I’m not saying everyone has to do momentum investing because if everyone starts doing it, we will have no edge left. I don’t want all of you to do momentum investing; please continue with whatever you’re doing so we can generate that extra alpha when the market is in our favor.
