Should you stop your mid and small-cap SIPs? That is the discussion that has been going on since yesterday. Yesterday’s Daily Bite was also a big discussion on this subject, and today I’m going to show you some data. You can decide after watching that data if stopping SIPs makes sense or not.

Where is the market headed?

Market Overview

I wish I had the answer. The market is down 1.32%, and in just the last five sessions, we’ve given up most of the gains from the January mid-bottom. The market is still searching for its bottom. We had one major dip going into mid-November, followed by a bounce. Then, we dipped again in mid-January, had a small bounce, and now we are dipping further. I don’t know where the next bottom will be. If we don’t breach this bottom, that will be great news. But if we breach and go lower, still within the range of 22,000 or maybe even the worst case of 21,000, I think that will probably mark the end of this current series of lower highs and lower lows.

Even in bear markets, you will have strong uptrends. We haven’t had one really significant uptrend since the middle of December, except for these 3-4 days. So, the market is completely oversold for sure. Weak hands have gotten out for sure. It’s all these utterances and fear-mongering in the market that are causing more people to panic. And rightly so, because if these staunch India story believers are now throwing in the towel, what do you expect retail investors to do? They’ll probably follow the gurus they have been following for so long.

My sense is that either this narrative should have been built earlier—that we are too expensive, closing our fund, and you should be getting out of our fund—or it is too late now to panic and make people lose the advantage of their SIPs. We’ll talk more about that data.

So, for the day, the market is down 1.32%, quite a bad day from the market’s perspective

Nifty Next 50

The Nifty Junior crashed 2.5%, closing very near the previous low and looking meaningfully weak going forward.

Nifty Mid and Small Cap

Mid-caps were down 2.94% in just 3-4 sessions, and the entire feel-good factor has evaporated. We are now down from nearly 22,000 to 18,800, possibly going further down. Almost 3% lost in one day. Small-caps also down 3.4%. Again, you’re seeing a lower low being made on each leg. This leg also looks meaningfully weak.

Nifty Bank Overview

The Bank Nifty, while not as weak as others, was still down 1.16%. So, there’s no place to hide.

GOLD

Even gold dropped today after last week’s crazy run. Last week, we were at 82,000; this morning, we were at 87,000, and now it’s closing at 85,500. I think this has run up quite a bit in a very short time, so there might be a pullback towards the mean on gold as well.

Advanced Declined Ratio Trends

Looking at the advance-decline ratios, there were no advances. Virtually 22 stocks advanced in the top 500, while 479 were declining.

Nifty Heatmap

The heat map was all red. If you look anywhere, you’ll find red shining brightly. So, everything was down, but the stocks exceptionally hit were probably Coal India, Tata Motors, Aisha Motors, and even ITC and Hindustan Unilever were down 2% each. So, FMCG is also hurtling down fast.

In the Nifty Next 50 space, it was even more red. Zomato was down 5%, Vedanta 3%, Hindustan Aeronautics 3.6%. There was no place to hide. Stocks like DLF, BNB, PFC, Siemens, ABB, and Adani Power were some of the few places where you saw green.

Sectoral Overview

All sectors were in the red. The capital market stocks were hit the hardest, down 5.1%. Capital market stocks have lost 11% in just one month. They’re late to the falling party, but now they’re falling fast. Defense stocks were down 3.5%, real estate down 3.1%, media, tourism, public sector enterprises, autos, PSU banks, and energy consumption stocks were all down 2% or more. The rest were down between 1% and 2%.

FMCG is now down 6% for the week, 9% for real estate, and in the last month, things have gone into double-digit negatives for media, capital markets, and real estate. Over the last three months, media is down 21%, energy is down 18%, public sector enterprises down 17%, and so on. There’s no sector left in the last three months where we can see any green at all.

Sectors of the Day

Nifty Capital Markets Index

Capital market stocks are now at a recent low. Stocks like K Fintech, which was flying high, are now down almost 10%. BSE, which rallied after its results, is down 6-7.5%. Other stocks like Nippon Life, Multi Commodity Exchange (MCX), HDFC Asset Management, and CDSL are all down. When liquidity is going out, these stories get sidelined. The power of liquidity moves more than narratives.

Story of the Day : Is it Risky to Invest in Mid & Small Caps Right Now ?

One prominent manager has said that you should stop your SIPs because the market is too expensive. This comes after their funds had dropped significantly, and they also mentioned that their sales teams want to keep pushing forward. There’s a conflict of interest happening there. I wanted to share my perspective. Yesterday I did that, and today I’m showing you some data that will be relevant.

Where are we now? Let’s look at the Small Cap 100 Index. The index is at the same place where it was a year ago, though stocks have fallen quite a bit, and some of them have taken significant damage. From an index perspective, though, the small-cap index is where it was one year ago. So, most of the damage has been from last year.

The most repeated mistake in stock markets is to come in when the euphoria is at its last stage, prompted by FOMO. You go to a party, your friend tells you he made a 10-bagger and is going to buy a Mercedes next month. You feel left out and want to put money into the market at that point, not having done so in the rally. But once you do, that “Mercedes” turns into a “Maruti” in a few months. That story keeps repeating. Whether it’s the 2008 crash, 2014-2018 euphoria, or the COVID rally, you enter at the end and get a beating in the next two years.

For those evolved investors who have been through one or two such cycles, this correction shouldn’t bother you. If you’ve been in the markets for about eight years, you would have seen the 2018 crash, the 2020 crash, and the 2022 correction. This correction should not bother you. But if you’re new to the market, the last 2-3 years might still be a learning phase. Consider this as a huge learning experience going forward.

For anyone who started their SIPs during the COVID rally or at the peak of the last rally, the market is giving them a beating because they haven’t seen any green so far. Let’s do a case study.

In this case study, we’ll look at the worst-case scenario: what if you started your SIPs at the market peaks? So, we will assume you began a SIP at the worst time in the market and continued it, ignoring fund managers telling you to stop. The data will analyze the drawdowns during that phase, total contributions, current portfolio value, XIRR, index CAGR, months where the contribution was more than the portfolio value, and the pain period during that time.

For the last 20 years, let’s look at all the peaks: May 2006, January 2008, November 2010, January 2018, and October 2021. The drawdowns during these periods were 36%, 72%, 40%, 44%, and 22%, respectively. The current drawdown is around 20%, and we don’t know how far it will go.

The data shows that starting an SIP at these peaks still resulted in good returns. For instance, if you started in May 2006, contributed 23 lakhs, and the current value was 1 crore 27 lakhs, the XIRR achieved was 16%. You spent 227 months in the market, with just 14 months where the value of your portfolio was less than your contribution.

Similarly, starting at other peaks like January 2008, November 2010, January 2018, and October 2021, the data consistently shows strong returns despite the downturns.

Now, let’s look at small-caps in the same way. In the worst-case scenarios, starting SIPs at the peaks, the data shows decent returns even after significant drawdowns. For example, in January 2008, despite a 77% drawdown, a contribution of 21 lakhs resulted in 69 lakhs today, with an XIRR of 12.76%.

The key takeaway is that SIPs are a great way to weather market volatility. Even in the worst-case scenarios, SIPs consistently outperform lump sum investments.

So, don’t fall into market narratives. Even if someone is panicking, don’t mirror their thoughts onto your own portfolio. It’s your hard-earned money, and you shouldn’t throw it away just like that. When you started your SIP, did you not promise yourself to continue for 10, 15, or 20 years? One down move should not make you abandon your plan.

The key takeaway is: no pain, no gain. If you’ve enjoyed the bull rallies, you have to bear the downside as well and have the appetite to digest the correction. The data is clear: if you stick to your SIP strategy, you will be okay. Remember, you came to the market for fantastic returns, but you must bear the pain to get those returns.

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