The market took a significant hit today, and this reaction was unexpected by many. The markets plunged from around 24,650 to 24,319, losing over 300 points in a single day. This comes after some solid bounces from support levels in recent sessions, signaling that something dramatically changed today. Was it the disappointing fiscal and trade deficit numbers that were released, or was it the declaration from Trump about focusing on US manufacturing, job creation, tariffs on other countries, and tax cuts for companies producing within the US? After yesterday’s positive narrative, it suddenly feels like a shift is occurring, and parts of the foreign institutional investor (FII) groups may have sold off aggressively today. We’ll have more clarity on the numbers later.
Emerging markets as a whole, including India, along with precious metals, all lost ground today. This suggests that the strength of the US dollar—currently at a near 106.8 index—may continue to rise. There’s a thesis forming that money is flowing heavily towards the US market, given the US market cap is about 70% of the global total, while its GDP is just 25%. This disparity indicates a strong concentration of funds in the US, making US assets increasingly expensive compared to the rest of the world. The US markets are currently trading at around 28 times earnings, which is on par with or even more expensive than the Indian market, despite the relative growth potential of India.
Where is the market headed?
Market Overview
Today’s fall was particularly striking because there was almost no rebound. The market just kept dropping, and we’re now at the 24,300 level, which is close to a key support zone. If this level breaks, further downside could follow. My initial expectations of an intermediate uptrend in Nifty were shattered today. While the broader market didn’t decline as sharply, the decline in Nifty was quite intense. Emerging market indices, including India, as well as metals and commodities, all saw red.
The data shows that the dollar strength is likely to continue, and we could see further pressure on global markets. If we break below the 24,300 level, a drop to around 23,300 could be in the cards.
Nifty Next 50
Looking at the broader market, Nifty Junior was down 1.32%, and the breadth of the market wasn’t as bad, especially in mid-caps and small caps. Typically, when markets collapse, mid-caps and small-caps tend to fall much more than large caps. But so far today, this has not been the case.
Nifty Mid and Small Cap
Mid and small-cap stocks did not experience the same level of decline as the large-cap indices, but if the Nifty continues to slide, smaller stocks will also likely face pressure.
Nifty Bank Overview
Bank Nifty, for instance, lost 1.39%, signaling a breakdown in the recent consolidation pattern.
Advanced Declined Ratio Trends
The trend today was clearly in favor of the bears, as advances were far fewer than declines—116 advances versus 383 declines—making it clear that the market was under selling pressure.
Nifty Heatmap
Within the Nifty, stocks like Reliance (-1.5%), Bharti Airtel (-2.9%), TCS (-1.9%), Infosys (-0.56%), and HDFC Bank (-1.3%) all saw significant declines. On the flip side, stocks like ITC, HUL, Tata Motors, and a few others showed some resilience, but the overall market breadth remained negative.
Looking at the Nifty Next 50, there were a few green spots, like United Spirits, Lodha, Bajaj Holdings, some Adani stocks, and Zomato, but most stocks were in the red. Stocks like TVS Motors, Pidilite, Vedanta, Siemens, and others dropped by nearly 3%. There was an attack by the bears today, and the market is bearing the brunt of this selling pressure.
Sectoral Overview
Sector-wise, all major sectors were in the red. PSU Banks were down 1.8%, Infra stocks were down 1.7%, and commodities, metals, energy, public sector enterprises, autos, and private banks all lost between 1.4% and 1.8%. The defensive sectors like FMCG, IT, and pharma did lose ground as well, but their declines were comparatively smaller. Real estate, however, was the least impacted sector, losing only 0.1%. Even on a day like this, real estate managed to hold up better than other sectors.
Sectors of the Day
Nifty PSU Bank Index
Among the PSU banks, Bank of India, Union Bank, Indian Bank, and Bank of Maharashtra were among the biggest losers, with drops ranging from 2% to 3.5%.
Stock of the Day
Jyoti CNC Automation
The stock gained 11% today and hit a new all-time high, showing relative strength in a weak market. In a scenario like this, it’s important to watch out for such stocks. Any stock that rises on a day when the broader market is shedding blood could indicate something positive, and investors should be cautious of missing out on such opportunities. One should consider looking for buying opportunities on dips in stocks like this, as they might be telling a positive story amidst the broader market turmoil.
Story of the Day: Should you regret missing the Paytm IPO?
Paytm shares have recently closed above the 1,000 mark after a strong climb from its lows. But let’s take a step back and recall what happened during the IPO and the emotional rollercoaster it has been for investors in this stock. Paytm listed around 2,000 rupees in late 2021, but immediately after the listing, the stock plunged by 75% in the first 12 months. For anyone who bought during the IPO or at the listing price, this was a huge loss. However, from its bottom, the stock staged a 128% rally over the next 12 months. The issue here is that after a 75% fall, you need a 300% gain to break even. Even after the 128% gain, the stock barely managed to touch 1,000 rupees before experiencing another 70% drop. These kinds of massive shocks are incredibly difficult for any investor to stomach.
Warren Buffett, for example, slashed his position in Paytm, which further drove the stock down. On top of that, the Reserve Bank of India barred Paytm Payments Bank from onboarding new customers, and the company’s business model itself looked shaky. The expiration of the one-year lock-in period also led to major shareholders like Alibaba selling off their shares at a steep discount, further driving down the price. Despite all this, from May 2024 onwards, Paytm has made a phenomenal recovery, rising from nearly 300 rupees to a 235% rally in just eight months, and is now back above 1,000 rupees.
Looking at Paytm’s chart, there have been four phases of this stock, and this kind of volatility is emotionally tough for any investor. You might have bought in during the initial phase, watched the stock fall, then averaged down, only for it to collapse again. When it starts recovering, you might feel like it’s too good to be true and decide to sell, only to miss the next rally. This kind of rollercoaster can make it difficult for investors to make rational decisions.
From a momentum investing perspective, no momentum strategy would have picked Paytm during the initial rise, and even during the big falls, the strategy would have had an exit. However, a momentum strategy would have likely been able to avoid the major losses and capture the subsequent gains, preserving capital throughout the volatile periods.
One of the key lessons here is that in momentum investing, it’s crucial to protect your capital when stocks are experiencing sharp declines. Without this, it’s nearly impossible to recover your portfolio when such volatility occurs. So, in the case of Paytm, while you might not have made a significant profit, a momentum strategy would have ensured you didn’t lose big during the major drops.
Regarding IPOs, it’s important to remember that IPOs are often an exit opportunity for insiders—private equity investors, promoters, and early backers—who want to maximize their exit price. Retail investors often get caught up in the hype, buying stocks at inflated valuations during periods of greed. The result? A sudden and steep drop once the excitement wears off, and retail investors are left holding the bag.
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