There was blood on the street. The way you read in the investment thesis books is to buy when there’s blood on the street. Well, there’s a lot of blood on the street right now, and nobody’s buying. That’s precisely why the blood is there. While the market is getting bloody, one needs to have a realistic approach and realistic expectations. If anyone is feeling nervous or fearful, that emotion should dissipate, as it’s natural for the market to behave this way, especially considering its performance over the last several years.
Even another 10% drop from here is really not out of the question. From this perspective, while there have been significant cuts in some parts of the market, I don’t think there has been the kind of mayhem people have been discussing on X and other platforms. It’s easy for us to fall into recency bias; human behavior tends to make us assume that continuous upward movement is normal. However, that isn’t the case. Just like any other activity, including films, markets have periodic ups and downs, and we are now entering a consolidation, or perhaps a boring, period of the market. This was something one should have expected at some point.
In terms of distance from the 200-day moving average (DMA), it’s not so bad. Even if we assume the markets are heading toward the 200 DMA, that wouldn’t be disastrous. The fund flow is, of course, a reason we are still holding here; otherwise, we could have been 20% lower.
Domestic and foreign institutional investors (FIIs) are currently in the red, and bears are in complete control. This brings us to the topic for discussion today: should you panic?
Where is the market headed?
Market Overview
The markets have come down to what I would consider a reasonable support level, at least in the short term. If you recall the head and shoulders pattern we discussed, it broke down near the 24,800 mark, having given up almost 600 points. We were anticipating a drop of about 1,300 to 1,400 points, so another 600 to 700 points could be the next move. Thus, 23,200 to 24,400 seems like a logical destination for this pattern’s movement. However, this recent leg has given up significant ground over the last week. There may be a bounce, but if we break the 24,000 band, we could indeed see levels around 23,300 to 23,400.
The results of many companies, particularly in the banking sector, have been muted or really disappointing, especially among second-tier banks. Microfinance is struggling, and two-wheelers in the auto sector are also facing difficulties. Paint companies and fast-moving consumer goods (FMCG) are not finding volume growth. There seems to be struggling growth all around. While the narrative painted so far has been that everything is fine, perhaps tax revenues have been growing much faster than the industry and top-line growth, leading to some pain for the markets.
This all began when money started to move towards Japan and China at the beginning of October. October has historically been a month of market disasters, and I hope that in the next three or four sessions leading up to Deepavali, we don’t see any significant downturn. If we can stabilize here for the next few days, I think the markets will take that positively.
Nifty Next 50
The Nifty Next 50 index has broken below the election day high and is now precariously poised below 70,000. It has lost a significant 7,800 points over the past week, with a loss of 1.57% today. T
Nifty Mid and Small Cap
he mid-cap index is also feeling the pressure. After two days of recovery, the downtrend has resumed. We are in a sort of sweet spot support zone, and I hope we get some support here. The mid-cap index fell 1.7%, and small caps lost 2.28% today. We’ve retraced about four and a half months of gains, so if we were to look back to June, we are currently at similar levels.
This whole thesis that we have achieved X on our portfolio, and thus X minus 5% is disastrous, needs to be put out of our heads. If you started with 100 and are now at 200, and then drop to 175, you’re still significantly ahead of where you began. Yes, some may start at the absolute top, but studies have shown that even then, if you gradually bring in your money, there’s no reason you won’t make a profit over time.
It’s crucial to stop evaluating your portfolio based on short-term movements. People often invest with a long-term view but panic when checking prices at 9:15 AM. This requires maturity in investing, and after experiencing a few cycles in the markets, you’ll realize that there’s no point in worrying excessively over corrections. This is just a natural part of market life. Don’t let market fluctuations disturb your life; the market is merely a medium for growing your money.
Nifty Bank Overview
The Nifty Bank index is also coming down, completing a head and shoulders pattern. If it breaks down, we could see significantly lower levels. Currently, the Nifty Bank is where the election day high was, and I think it remains reasonably stable, not cracking too hard. Given the corporate numbers and low growth, perhaps the Reserve Bank of India will consider rate cuts, which could provide support for Bank Nifty.
Advanced Declined Ratio Trends
Today, the advanced-decline ratio was heavily in favor of declines: 426 declines versus only 74 advances. There was a selling spree of 5,000 crores from FIIs, while domestic institutional buying slowed to about 3,600 crores. As I mentioned in previous sessions, the confidence that local money will continue to pour in can vanish quickly. If the market experiences stress for 15 days to a month, many investors will likely stop their systematic investment plans (SIPs) or withdraw funds.
I was surprised to learn that the average fund investor has only been in the market for one and a half years. This short timeframe could indicate either extreme luck or a hasty retreat following market drops or stagnation. Many people fail to realize their potential gains because they don’t spend enough time in the market and lose confidence during downturns.
Nifty Heatmap
Despite the overall market sentiment, a few stocks, such as Access Bank and ITC along with Sun Pharma, provided some support to the Nifty. However, most stocks in the Nifty faced selling pressure. Reliance, State Bank, Bajaj Finance, Maruti, and Mahindra were all under pressure. The Nifty Next 50 was particularly hard-hit, with stocks like DLF, IRFC, PFC, REC, and ICC losing around 3%. Similarly, Indigo, IOC, and Vedanta saw declines of more than 3%.
Sectoral Overview
Sectorally, everything was in the red except for FMCG, which showed a minor bounce after significant losses yesterday. IT and Pharma, considered defensive sectors, were not declining as much as others. However, real estate, infrastructure, auto, energy, commodities, public sector enterprises, banks, and metals have all been significantly affected. Over the last month, we’ve lost 13.8% on real estate, 10% on public sector enterprises, 11% on auto and energy, and 10.3% on consumption and FMCG.
Sectors of the Day
Nifty FMCG Index
Despite the widespread downturn, there was a small uptick in the FMCG index today.
Stock of the Day
Thermax
The stock spotlight is on Thermax, which is bucking the trend. After a period of consolidation since June, it appears to be forming an inverse head and shoulders pattern, indicating strength in a weak market.
Story of the Day
To assess market conditions, we can look at the percentage of stocks above various moving averages. Before October, around 94% of stocks were above the 200 DMA, and 72% were above the 20 DMA. However, we’ve seen a sharp decline: now only 60% of stocks are above the 200 DMA, 65% are below the 100 DMA, and nearly 90% are below the 10 DMA. In the short term, many stocks within the Nifty 50 have really collapsed.
Yet, among the top gainers this calendar year, Sun Pharma is still up 47%, and ICICI Bank is up 25%. While some stocks like Nestlé have lost 17%, Kotak Bank is down 7%, and HUL is down 5% this year, the large-cap space hasn’t suffered as drastically as one might assume from the 52-week highs.
In the Nifty Junior space, 86% of stocks were above the 200 DMA at the start of October, but that figure has now dropped to 50%. Most stocks are now below the 200 DMA, with a significant drop in the lower moving averages as well. However, there are still pockets of strength, such as Zomato, which is up 103% this calendar year, and Torrent Pharma, which is nearly 49% up.
In the mid-cap segment, the situation is similar; 200 DMA levels have fallen from 87% of stocks to 54%. In the small-cap space, the chaos is even more pronounced, with only 10% of stocks above the 20-day moving average. Yet there are still some stocks, such as AJS Logistics, up 112%, and First Source, up 80%, among those facing declines.
The biggest mistake many make is not adhering to their strategy. While investors often buy stocks based on an investment thesis, they tend to sell based on price fluctuations. It’s crucial to remember why you bought a stock. If your thesis is still valid, stick to it. Let the thesis play out rather than letting price dictate your decisions.
Taking a broader view, we’ve been on an upward trend since around mid-2022. This year has seen little in the way of time correction, and a correction of two to four months might still be in the cards, even if the mid-term outlook remains intact.
That said, this should not deter you from staying invested. If you do not have a long-term plan, it’s easy to succumb to short-term fluctuations. Remember that you need to think beyond a single stock; the market can correct, but the long-term trend will remain. The world isn’t ending; we are merely undergoing a healthy correction. Ultimately, stick to your guns, stay invested, and remember that patience is key in investing.
