The market’s in a fine mood today, although Nifty didn’t move much, but the rest of the market made a comeback. So it’s like a bounce that is happening now. Whether this is an interim bottom or just a few days of bounce, we don’t know yet. But nevertheless, any green on the screen right now is more than welcome.

I think we have had some really, I would say, sequentially bad weeks, rather months. We are in the fifth down month now. This fifth down month, although we still have a good multiple sessions left for the month to go, but if we do close February as well in red, this will be the first time since I think 1996 that the market has ever dropped five months in a row. There was a period prior to ’96 where the market did fall for even eight months in a row, I think 94-95 was that period. But five months in a row has not happened since 1996. Certainly, it has not happened in this current century. So this is a big deal in terms of statistics.

Let’s see where we end at the end of February. I think we will have a green tick on the monthly candle at least by the end of the month.

Today for the story of the day, we are going to talk about a serial trap that most retail investors get into.

Where is the market headed?

Market Overview

So, markets – Nifty actually jumped up, crossing two-day highs as well. You can see here, but then succumbing to pressures in the second half of the session and not closing above the two-day high. So this, as you would recall from my previous videos, I’m always looking for at least a two-day high close.

So if Nifty had closed above the two previous candles, that would have given me more confidence that the market is wanting to move up, just like here perhaps, but that was not to be at least for today. But nevertheless, the last four sessions within a couple of hundred points of 23,000 is not something that, you know, is really so bad, given the fact that we are already down from 26,000 to 22,822-900. Some bounce is always possible anytime. So Nifty closed absolutely flat for the day.

Nifty Next 50

Nifty Junior closed at a two-day high, up 1.1%. Looking good. Almost as if we are starting off a new leg of this nature towards the new, towards the averages. 64500 remains the big pivot beyond which the confidence will certainly rise even more.

Nifty Mid and Small Cap

Mid-caps also up 1 1/2 percent. Very good rise from 17900 just two days back to 18,600. It’s a good, good rally. Beginning of green shoots. Whether these green shoots will last or not we will come to know only in a few days’ time. Small-caps also almost like a bullish engulfing, up 2.25%, very good recovery, aided mostly by stocks, you know, that have been hammered in the past, defense stocks and so on.

Nifty Bank Overview

Bank Nifty again closed at a two-day high for sure but very near now, 50,000, again at the 40-day moving average as well. So Bank Nifty is probably the stronger of all the indices that we have seen so far. Bank Nifty is well above the January lows, which is not the case in other charts. So relatively, Bank Nifty is doing well.

GOLD

Gold is up another 0.3% for the day. So we are closing in on 86,700 on gold, and gold – this kind of a move I haven’t seen in a long, long time, where in less than two months, we’ve gone from, you know, 74,000 to nearly 87,000, almost touching 18% or so. There is something happening in the gold market for sure. We’ll find out as we go along.

Advanced Declined Ratio Trends

Nifty – absolutely flat. So Nifty was not demonstrating what the rest of the market was doing. Nifty Bank – all green. Nifty Midcap – 80% green. Nifty Next 50 – also green. Nifty 100, which includes Nifty Next 50 and Nifty 50, was sort of like 2/3, 1/3, and Nifty 500 had 383 advances versus 114, so reasonably good breadth across the board for all the indices

Nifty Heatmap

In the heat map however, on the Nifty, you can see that stocks were hammered badly. TCS, Infosys, Tech Mahindra, HCL Tech all down. Reliance was flat. HUL smashed down 2%. Bharti, Maruti, Mahindra, Sun Pharma – these were also down, and you only had some stocks like Axis Bank, L&T, Bel go up. Hindalco, Aisha Motors also up.

In the Nifty Next 50 space, a lot more green. You have DLF, IRFC, PFC, Lodha, REC, Geo Finance, Union Bank, JSW Energy, Torrent Pharma, Zomato – all doing quite well. LTIM, again in the IT space, was down. Adani, after this new probe and more details required by the US SEC, stocks were down for Adani Green and Adani Ports, although other Adani stocks did not fall much.

Sectoral Overview

Capital market stocks have cleared out whatever losses were there for the last one week, up 4.3% in just one session. Defense, after a smashing debut today, up 4.2%. It’s up 25% in just six months gone by. Defense stocks on the move on the hope that, you know, there will be more export orders for defense given the fact that Trump has been talking about more export of defense components from India, and there will likely be more tariffs on pharma, autos, and perhaps even IT stocks. So that is where most of the weakness was. You had some good gains in PSU banks, real estate, tourism, metals, and the public sector enterprise space also.

So given this, today’s move, a significant number of sectors have, you know, reduced the losses in the last one week. Defense is still in a minus 4.9% loss, but this is also the biggest gainer for the day

Sectors of the Day

Nifty Capital Market Index

In the capital market space, BSE jumped 9% in one session. So BSE has been extremely strong. BSE is, I think, hardly 10 or 12% of its all-time high. So BSE has been quite a remarkable story. K Fintech, 360, Angel One, Nuama, Multi Commodity Exchange – all doing quite well, up 3% to 6%. This sector seems like it’s coming back up very, very rapidly.

Story of the Day : Are you avoiding this perfect serial trap?

Let’s look at the mutual fund inflows and how they have performed so far. In October, before this market fall started, you were seeing these kinds of headlines where mutual fund inflows have doubled in 2024, record SIPs coming in, 43 consecutive months of inflow growth, and everything was hunky-dory at that point. FII data also, you know, sporadic buying figures. These are monthly data of the last four odd years, but on average, mostly selling, DIIs however continuously buying, hardly any selling or, you know, low buying months. In fact, from August 23rd, they have been continuous buying in a big way going forward. When we look at the two numbers, DIIs and FII figures, 8.2 lakh crores taken out by FIIs and 11.9 lakh crores pumped in by DIIs since Feb of 2021. So in four years, approximately almost three and a half, four lakh crores additional has been put into the markets by domestic institutions. Yet the FII figure continues to overshadow the domestic figures here.

Now, the problem here is how much of these inflows are translating into meaningful outcomes on the indices, etc.

So we look at one ratio called the SIP stoppage ratio. Today, the data for the month of January shows that the SIP stoppage ratio is surging and it has jumped from 60% to 80% to 109%. So let’s first understand what this SIP stoppage ratio is. The SIP stoppage ratio is the number of SIPs stopped divided by the number of SIPs started. So if in any one month 50 lakh SIPs have started, but you know, maybe 60 lakh SIPs have stopped, it would mean that the stoppage ratio is 120% for that matter. Now, so far, the SIP stoppage ratio has been in the 50-60% kind of range, which means that the number of SIPs stopped was much lower than the number of SIPs that were starting. And, you know, that is basically telling you that more and more SIPs are starting towards the market, and there is confidence in the market. But now, what is happening is – and this is an infographic from the mint – that since April 2024, where the outstanding SIP accounts for 8.7 crores and an AUM of 11 trillion rupees, the SIP stoppage ratio was 52%. And then in May, just before the June outcome of the elections, if you remember, a lot of people actually stopped their SIPs and possibly moved out of the markets or, you know, maybe moved into some defensive strategy. So this ratio really went up in May, but then from June onwards, again, the ratio collapsed to the near 50s, 60s, and from November onwards, it is very, very clearly proportional to the market moves. Since November, you know, that the markets have been on a downswing, and from there itself, you can see that the SIP stoppage ratio has been going up from the 60s to 70, 79, 83, and for January, it has been 109%. So essentially meaning that more and more people are stopping their SIPs versus starting new ones. Some of these are also rotational in nature, where you stop one scheme but start another one. But net-net, if you see in terms of the number of SIPs, that is something that is going up in terms of stoppage.

Now, the SIP AUM has not really dropped off, which is a sort of a positive sign, where despite the stoppages, the amount of money, net amount of money coming in, has not really dropped off the clip. It is down by maybe like 3, 4% from its highs, but that is not significant. However, the number of SIP starts and stops are certainly quite stark. So this could mean basically two things: either investors are squaring off their investments too early, or they are constantly jumping from one trend to the other. So what’s the next sort of hot thing in the market? Let’s go there. Or what the distributor or your bank relationship manager is able to sell to you because their job is to sell you the fund which has the hottest returns in the last one year or two years and the ones probably also giving them the most commission.

So you can see it very, very clearly here. Total inflows of 1.5 lakh crores in calendar 2024 have been into sectoral or thematic funds. So, you know, whether defense was running or earlier than that, PSU banks were running. So almost 40% of the market is going into sectoral or thematic funds, which clearly is an indication that this is being thrust down people’s throats either by sellers, distributors, bank managers, or people are just chasing very recent returns in specific schemes or specific themes. And that is what is driving those ships towards those thematic funds.

So let’s also now, in context, look at, you know, the historical perspective of the Magellan Fund. I’ve talked about this fund many times, but it is good to talk about this in this context as well. Where, you know, the Magellan Fund was managed by Peter Lynch, one of the greatest greats of fund management of all times, from 1977 to 1990. And you can read his book – it’s an amazing book. And he delivered an astonishing annualized return of 29% per year for those 13 odd years. And the fund’s size grew from $18 million to $14 billion in 13 years. One of the most successful funds in the history of mutual funds in the world.

Now, the irony here is that despite these stellar returns, you know, imagine a mutual fund that is giving a 29% CAGR over 13 years. The average investor in the fund actually lost money or at least made much less than the fund’s official returns. Now, you can say, how can that happen? Now, it would always happen because people will not simply follow that fund for five years, seven years, ten years, but rather whenever there was a huge run-up in the fund because of a good market, it is at that point that most investors would come in. And then whenever in one or two years there was a bad performance, people would move out at that time. So the average investor never sort of made money in the fund, despite the fund doing really well. So somebody who came in from the start to end really made a lot of money, but somebody who just tried to keep timing the entry of their investments in and out did not make any money.

So the whole idea being that this SIP closure or SIP stoppage that is happening is potentially the same activity that is happening, that people are jumping from one ship to the other, from one theme to the other, from one market cap to the other, without realizing that they need to stay invested for a long period of time within each of those segments to really go through that market cycle. So that lack of patience to sit through that market cycle is the biggest reason why most investors will not make money in the markets. They will keep entering at peaks, keep exiting during corrections, be the sheep, you know, at the bottom and be the pig at the top and absolutely get slaughtered. So, you know, performance chasing instead of sticking to a plan is the core sort of, you can say, the serial trap that a lot of folks are, you know, trapped in, maybe because of poor, you can say, guidance by others, but then also because a lot of folks are not really taking it upon themselves to really figure out what is happening. You know, just investing on somebody else’s advice in terms of, you know, you have to see what is there, you know, sort of incentive to sell you those particular themes. Is it commissions, is it something else? And what are you getting out of it is something that you need to, you know, really open up your eyes to.

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