Where is the market headed?
This marks the end of the week, and it wasn’t a great one for the broader market overall. However, for the large caps and some larger mid caps, it turned out to be not such a bad day. The RBI monetary policy announcement came in the morning and included a quarter percent cut in the interest rates. This move was somewhat expected, I would say, but not entirely. The market did get surprised.
Before the announcement, we were trading pretty much in negative territory, but post the announcement, we quickly moved into the green. So, there was definitely an element of surprise for the market participants.
Interest rate sensitive stocks certainly climbed, and some sectors like real estate jumped up initially but could not really sustain that momentum on the higher side. The other segment of the market, which is basically small caps and micro caps, is now sitting in some deep, deep, red territory. Micro caps actually lost a major support level on the charts, and small caps are almost there as well.
This creates a very divided market where the top end of the market is inching up while the bottom end of the market is falling down like a rock. This situation has led to a sort of imbalance being created in the market, currently with no immediate domestic triggers.
Market Overview
The market charts are right there in front of you. Nifty closed up 0.59%. The Nifty chart is not looking bad at all. The Nifty chart is actually looking like this: we had this huge rally, followed by a correction, and now we are on a continuation mode. Just one more day like this can potentially put us to new highs once again, so Nifty has no problem whatsoever.
Nifty Next 50
Nifty Jr., as you can see, came back from the lows, closing at 0.22%. It’s not too hot in terms of the gain made today, but nevertheless, it is hanging in there.
Nifty Mid and Small Cap
Mid caps also swung back from a bottom of 22,021 to close at 22,207. So, that’s almost a 200-point swing in the mid cap space, meaning mid caps also seem to be stabilizing a bit. Small caps is where the trauma is, as despite the U-turn in the market, small caps continued to fall, closing 0.5% down. This marks the seventh continuous session where small caps have fallen.
Bank Nifty
Bank Nifty, of course, was very enthused with the rate cut, closing up 0.82%, again closing very near its daily as well as weekly highs.
GOLD
Gold is inching up, up 0.65% today. The rate is 12,958 per gram, so almost 13,000, or you can say 1,30,000 per 10 grams, and we are very near the previous highs.
SILVER
Silver is also moving up, gaining 1.87% to 1,78,387 per kg, and is also looking good in terms of the charts. Advanced-decline trends remain in the favor of declines.
Advance Decline Ratio
You can see that the advances line (the green line) was actually inching up through the day while the decline line came down. So, that is the only sort of silver lining you can draw out of this chart; otherwise, there was no strong market breadth as such in terms of positive momentum.
Heat Maps
The Nifty Heat map was reasonably good. Hindustan Unilever was a major loser, dropping 5%. I think this is one of the biggest falls in thsi stock we have witnessed in the recent times. There were some good gains in banking and finance stocks. The IT stocks continued to gain, I think, on the back of the fact that the rupee is not yet showing any strength. Autos, cement, and steel all moved up due to the interest rate advantage that they would get.
The Nifty Next 50 Heat map, however, had a significant number of reds alongside the greens. PSU banks recovered today after the drubbing they took yesterday. Some stocks in the FMCG space like Britannia, Godrej CP, United Spirits, and other stocks like DMart, BPCL, moved up, while there were some losses in LIC, Hyundai, and Vedanta.
Mover Of The Day
In the Mover of the Day segment, the stock that moved the most is Mahindra and Mahindra Finance, up 5.92%. The company has received a regulatory nod for a co-branded credit card. I’m sure that is not the only reason; the stock had been moving up and was just waiting for a market correction to get over to move along with it. Disclaimer: We may hold this stock in many of our portfolios.
Sectoral Overview
PSU banks came back very strongly, up 1.5%. But if we look over the last one week, PSU banks are still down 1.5%, so today was some recovery of the loss. Financial services stocks were up almost a percent. IT was up almost a percent. Nifty banking overall was up 0.82%. Autos were up 0.74%.
The Services sector was also up about 0.7% or so. You can see that in the last one week, we’ve lost 2.6% on Defense, and in the last one month, we are down 3%. However, if we look at the whole year, Defense is still up 13%.
The worst performer this year so far is Nifty Media, and the best performer so far is Nifty Auto at 17% in the last one year. In the PSU banking space, SBI, PNB, Bank of Baroda, Indian Bank, and Bank of India were in the lead. Although, I’m not sure if the downtrend is yet over for the banking stocks; today’s run was, of course, due to the rate cut.
Sector of the Day
Nifty PSU Banks Index
U.S. Market
In the US markets in the previous session, you had some good gains in Russell, up 0.75%. Others were very muted; Nasdaq, S&P 500, and Dow Jones were extremely muted. Some of the stocks that lost yesterday were Intel (down 7.5%), UPS, Costco, Starbucks, and 3M. These were the stocks losing ground. Some of these stocks may be part of the Weekend Investing strategy on the US markets, and these are certainly not recommendations. So, some of these stocks which were running up very, very hard are taking some break in the US markets as well.
Tweet Of The Day
In the Tweets of the Day segment, one thing is becoming very clear: people who only invest in bank FDs are going to have an even tougher time going ahead. The reason here being that interest rates are coming down and there is no immediate inflation fear inside. So, perhaps we’ve cut a quarter percent now, and perhaps we will cut another quarter percent in the coming months. That will, of course, translate into lower and lower FD returns.
Of course, the taxation is also there on the FDs. So, essentially, while you can say that the official figure of inflation is below 4% and you are making 5.5% or whatever it may be, in real terms, you have to look at your own inflation—what you use as goods and services and what is the inflation you are actually facing. If housing, medical, and education are parts of your costs, certainly the inflation you face is not anywhere near 4% from a general perspective.
So, it is a great time, especially for those people, to start to think about allocating to the market. Indian households still allocate lesser to the stock markets than they do to insurance and fixed deposits. Number needs to go up gradually, and the best way to do that is to allocate small amounts. If you have 100 rupees with you and you’re always afraid of the market, invest 10 in the markets through any vehicle that you choose, be it a mutual fund or a smallcase—whatever you may choose—but choose a vehicle that has some self-correcting mechanism. Self-correcting means there is somebody who is taking care of that portfolio. You’re not in direct stocks which may or may not return from their journey down. So, you invest 10, or better still, if you’re starting out, index funds are not bad either. You still have 90 in an FD. One year later, the worst-case scenario can be thought about: let’s say the 10 rupees in the market becomes 5 (a 50% crash in the markets all over the place), and your FD makes you 5% post-tax, hopefully. So, your 90 is almost 95 in the FD, and your 10 in the market goes to 5. So, at the end of the year, in the worst-case situation, you are still left with 100.
You’ve lost the opportunity cost of one year, yes, but you are also at the cusp of a major bull rally because after a 50% drop, you will have a great rally in the markets, and you can allocate 20% at that time or 30% at that time. So, gradual allocation to the market always helps. As you allocate, create a buffer so that you don’t feel like your capital is going away.
Whenever the market will come down, it will feel as if, “You know, I made some money from the market, and some of that is going away.” This will make you comfortable with the market. That’s how you can gradually, over a period of time, achieve 20%, 30%, 40%, 50%, or wherever the allocation is you want to go.
The problem with most people is that they want to go from 100 in FD to 100 in stocks or 80 in stocks, and that becomes an extremely difficult psychological experiment for them because they haven’t experienced volatility ever before. So, it has to be taken with baby steps—atomic habits, if you haven’t read that book, please read it—so that you are in tune with that kind of a move.
The second tweet was about micro caps. This is the Nifty Microcap 250 index. You can see how beautifully it has taken support at this point, and today and yesterday, it basically broke down from here. Now, the key point here is that we have a big gap here there’s a big gap here on May 7th or May 8th.
This rally that you had these four or five days was also a very thin volume rally that we had. So, there is potential that this region may get revisited, and revisited fast. That is the sort of fear in microcap stocks. And the small caps are also not too far behind; they are right at this edge in terms of their chart.
The government must realize that for India to do well, the capital markets have to perform very well. The new capital that comes to the market via IPOs, FPOs, and foreign portfolio investment is essentially like “grease” for the economy. The more grease you have, the smoother the engine will run.
