We are in the fag end of the financial year. People are busy, you know, doing their accounts. It’s a dull season. The last 15, 20 days advance tax has been paid. I think there’s no intention right now of any major moves in the market. So, it seems we are just about, you know, just hanging there hoping that no further damage happens this month.

So, don’t rely on past glory. It can kill you is the topic of our discussion for the second half of the session.

Where is the market headed?

Market Overview

Where is the market headed? The market had a nice 0.5% gain today, but we haven’t gone anywhere. I mean, in the last seven sessions, we’ve closed within 100 points or so of this 22,500 mark. The good thing is that this 21,900 to 22,600 gain has not been given up. So, we are consolidating in a flag-like situation, maybe somewhat like this, and there is potential for the next move up. Of course, what happens after that is anybody’s guess. But if you put a gun to my head, I think we are going to test 22,900 to 23,000 in a move that is coming, also because speculation is building in my mind. The dollar index is coming down, the US market seems to be toppy, and the Trump trade has gone wrong. The money that was gushing towards the US suddenly possibly is not gushing anymore. So, there are a lot of ways to justify why we should go up. But of course, it is anybody’s guess.

Nifty Next 50

Nifty Jr. did much better, 0.73%, still not out of the rut, but I won’t complain on any green day in this quarter at least.

Nifty Mid and Small Cap

Mid caps were also up 0.76%. Small caps were up 0.33%. They did not do well versus others, but maintaining position right now is decent.

Nifty Bank Overview

Bank Nifty did well, up 0.61%. It is trying to go above the last two, three days of close, which is good. But overall, of course, Bank Nifty has also not really done anything much.

GOLD

Gold has closed or is running at 88,200 for 10 grams.

The disbelief that is there that gold should come down, gold should crash—you know, you see a bull run happening in front of your eyes, and there are so many people who don’t want to believe it. Well, I mean, nobody can go around trying to make people believe that the bull run is on. Central banks all over the world are gushing for buying gold. Physical supply is limited right now. The setup is not there for any crashes. Yes, at some point of time it will crack, it will do a correction, it will frustrate the bulls. All that will happen at some point of time, but right now it doesn’t seem like that. But let’s see where this goes.

So, very good. I think the last four, five months, ever since markets have started to collapse, so end of September is where the stock market started to come down. And just see what gold has done. Since end of September, we were near 72,000–73,000, and we’ve gone to 88,000. So, an amazing kind of gain has happened in the last five months. While your equity portfolio was coming down, your gold portfolio has gone up. So, a good mix of asset allocation would have made sure that your overall portfolio doesn’t bother your sleep. I can tell you about my portfolio—some single-digit loss is there.

So again, it depends upon the stage of your life, what kind of risk you are willing to take, what is your allocation, and are you happy with, you know, let’s say blended 15% returns, that kind of outlook. Some people want 40% every year. I mean, good luck. It’s not impossible, but yeah, you have to stomach some volatility for that.

Advanced Declined Ratio Trends

Market breadth: reasonably green. Mid caps doing all right. CNX200 all right. Nifty also 64% of stocks in green. I would say reasonable day on that.

Nifty Heatmap

Heat maps: SBI, Reliance, Wipro, ITC, Nestle—all these stocks were a little off, but you had some good gains in Bajaj Finserv, SBI Life, ICICI Bank, Axis Bank, Mahindra, Cipla, Dr. Reddy’s, Adani Ports, Coal India, ONGC, and all these names in the Nifty Next 50 space. You had much more greens. You had Varun Beverages, Godrej CP, Adani stocks, JSW Energy, Indigo, Zomato, Naukri, ICICI General Insurance, ICICI Prudential Life Insurance, REC, Bajaj Holding, Lodha—all these stocks doing well, and big drops only coming through in LTIM somewhat, some drop in Union Bank, and Jio Finance and IOC.

Sectoral Overview

Sectoral trends: Pharma leading the pack with a 1.6% gain for the day, 2.2% for the week. The last one month is virtually now only 2% down for pharma. So, pharma has done reasonably well, I should say. And for the year gone by, pharma is still up 11%. So, pharma is probably in the top five, six sectors, right?

Capital markets are coming back, 1.1% for the day, and the week at least is flat. Of course, on a monthly and three-month basis, capital markets are still reeling under the pressure. Financial services, private banks, autos, metals—all these sectors also did more than half a %. Media lost 0.7%, but really, nobody cares about media. There’s only one stock that really makes a difference in media, and nobody bothers about it. Real estate, again, 0.4% I believe for this week, almost flat. But real estate really needs to pick up—29% down for the last three months on real estate. What is really not doing well has been, I think, this week, it has lost 4%, 12% in the last month. So, it remains a worry. And unless U.S. stocks take off, I think it will continue to bleed.

But the good thing is that, on Friday, U.S. markets did go up, and there was a record inflow into U.S. markets. So, this is potentially a small correction in the U.S. market, and it may still continue to go up. That is possible.

Sectors of the Day

Nifty Pharma Index

Pharma stocks that did well are there on the left of your screen. Dr. Reddy’s leading that space. And pharma index has come off its low quite nicely. If you compare this sector chart with other sectors, you are finding that other sectors are still, you know, within a stone’s throw of their previous recent lows. But this, you can see, is coming off very nicely and building up on that gain.

Story of the Day : Don’t rely on past glory. It can kill you.

That is the title, very exciting title given by my team. So, many times, you would see news articles, news pieces which will say, “XYZ stock has delivered 17% CAGR for the last 25 years. This is the fantastic compounder for you for the next so many years.” So many times you will hear this, you will invest in it, and then nothing happens after that, at least for many years, till you sell. Once you’ve sold, the stock will again, you know, regain its compounding mechanism. That is not the story of your portfolio. It will happen with every other portfolio at least.

And that is the reason for this discussion today: that we should not be falling into the trap of the narrative that the past glory has to continue. Right? So, whatever has happened in the past has a probability that it will continue to do well. Like just like momentum investing, we see the past performance of a stock, and we say there is a likelihood that this stock is going to do well. But then there are checkpoints at every week, every month, every three months: is it doing the same, is it doing the same, is it doing the same? If it is not, let’s get out of it. So, that check is not there in most people’s portfolios. I mean, I shouldn’t be taking names, but let’s say HDFC Bank, Asian Paints, many such stocks that have frustrated people out of their minds right now. They may still do well. They may frustrate people for the next five years and then go up, or they may go up tomorrow, or they may never go up. At least, let’s never—in the sense maybe for 10 years, they will not go up. Who knows?

I mean, Citibank dropped from, I think, some 60, $70 to like $2 in 2008, and it took a decade to even reach $30. Alibaba dropped from $300 to $60. It is still $140 after five years. So you can never say that past glory, despite them being sound good businesses, we have to delink the business from the stock market performance. What we see in our mind is that we link the two. Oh, brand, let’s buy the stock. Product, let’s buy that stock. These kinds of behavioral linkages that we keep making in our mind are the sole reason for people buying tops. Somebody buys at the top, right? The prop gets made. Who is buying at the top? The person who is completely in FOMO, completely in love with the stock, says, “I’m going to bet my house on it.” That’s where you get stuck.

So anyhow, coming back to the story, let’s say we start with 100 rupees in 2001, and we are now, you know, we are growing at 17% CAGR in that stock. The stock is 4,300 rupees today. Nifty has only gone from 100 to 1,666. So, the stock is doing really well, outperforming Nifty. Hence, you know, no-brainer kind of investment. Let’s invest our retirement money also into this. After 20 years, it is going to give me this kind of performance above Nifty. That is the usual thought process that goes into the mind of an investor.

Now, final numbers don’t give you any context of the journey of that stock. So, we will take a case study. We are taking a case study of Hecal Limited. Hecal came into the market somewhere in 2001. It crashed initially, like a 50% drop, and then it rose like a phoenix, going from, you know, 3, 4 rupees to some 65, 70, 80 rupees. It went up 20x in a matter of just 4.5 years. Just 4.5 years, 20x CAGR of 100% in that period.

Now you would imagine, you know, a stock that has done so well, you know, it’s going to go through the roof. And all my retirement money should be put into this. It is such a fantastic stock, good corporate governance, nice business model, quality management, everything that is good, but hey, it fell from 80 rupees to 20 rupees within a span of another two years.

So imagine 100 rupees invested in this stock. It went to 1,000 rupees, back to 200 rupees within a period of, say, 4 to 5 years. So, anyone who had bought and held on with this story, “Oh, the management is good, the stock is good,” he had to wait for another 10 years for the stock to go from 20 rupees to 100 rupees.

Now, this would have made the person so frustrated. This stock was almost delisted and disappeared. After that, it got revived, got back to 200 rupees, then 400 rupees, but it took a full 15 years to do that kind of price action from 2000 to 2015. It took 15 years for this stock to even get back to its previous high. And during that time, there were several periods of losing periods.

So, do not rely on the fact that past performance is an indicator of future performance. You should have proper strategy and thought process built behind all of it.

WeekendInvesting launches – PortfolioMomentum Report