Markets opened almost gap up and stayed higher than yesterday, so the downtrend that was witnessed in the last few sessions was at least bucked for the day today. The markets looked reasonably stable going forward.
In today’s video, we will discuss if markets can deliver 0% returns in 15 years. We’ll look at some history of other markets and consider whether we are getting carried away in the exuberance that markets can never fall. Let’s learn from history, be aware of how markets can play out, how our expectations should be built, and how we should be preparing for the worst.
Market Overview
Where are the markets headed? The market had a very nice jump, I would say 0.42%, but it did not really close near the highs of the day. It gave back some of the gains, but nevertheless, it was a decent jump after the fall in the last four or five days. This is pretty much a very consolidating, stable kind of market, not really in a rush to go either way. Maybe the market is waiting for the interest rate cut situation that will happen next week.
Nifty Next 50
Nifty Junior was slightly up 0.2%, again, nothing really much to talk about. Consolidating near the highs is not bad. Mid-caps, in fact, made a very nice candle pattern here, and with the gap up, it has closed very near the previous highs, up nearly 1%. So a very sharp move from this bottom to the top today in just two sessions.
Nifty Mid and Small Cap
Mid-caps are looking much stronger, and small-caps have also taken a U-turn from the previous highs, 1.25% up for the day. So again, very close to the all-time high. There’s nothing wrong in mid-caps and small-caps as an index, but within these indices, you are seeing great churn happening. A lot of PSU banks, public sector enterprise stocks, and defense stocks are softening, while other sectors are coming forth like consumption, pharma, etc. We’ll talk about that.
Nifty Bank Overview
Bank Nifty was marginally up 0.3%, can’t complain, above the average now and looks quite stable going forward. It can really take a nice jump if there is some hint of interest rates cut in India as well. Yields in the US as well as India are dropping much faster ahead of the potential interest rate cut. Even in India, the yields have dropped by more than half a percent on the ten-year bonds, and the expectation is that the rates will get cut. Let’s see how our RBI will act. The Fed is likely to cut 70% probability of a quarter percent cut, a half percent cut is about 20-odd percent, and the rest is maybe unchanged.
Advanced Declined Ratio Trends
Advance versus declines: This is CNX 500. So you had 382 advances and 214 declines. Largely, the market was focused on advances, and you had significant advances in the 0 to 5% range. Of course, there were some stocks that really ran away, and compared to the last two days, FIIs on the 9th of September bought ₹1106.76 crores, and DIIs also bought ₹1757 crores, so the buying seems to be back. The data for the equity part also suggests that more money, the highest amount of SIP has now gotten created, I think some ₹23,000 crores if my figure is not wrong, and debt inflows have reduced. So the overall figure that has been released is much lower than last month, but on the equity front, it is higher than last month. From that perspective, there is no damage on the equity front.
Nifty Heatmap
Heat map for Nifty: You can see IT stocks really doing well. Energy and power stocks did well. Bharti Airtel was doing well. Life insurance companies like HDFC Life, and SBI Life were knocked down very badly after there was no decision to remove GST in the GST council meet, and the only relief was on namkeens and not even on life-saving drugs. So I don’t know what that logic is, but nevertheless, pharma, Divi’s Lab was racing today, up 4.9%, and you also had some gains in Maruti, Titan, Cipla, NTPC, Power Grid, L&T, etc.
In terms of Nifty Next 50, you had some nice gains in Jio Finance, Tata Power, Zomato, Jindal Steel, Havells, and some gains in BEL. But the public sector finance sector is losing ground rapidly. REC, PFC are losing ground. Vedanta also lost a lot of ground today, down 4.4%, and ICICI Prudential Life Insurance, as per the previous GST outcome, was down 1.6%.
Sectoral Overview
Sectoral trends: IT led the pack with 1.7%, so it’s like a rebound day. IT up 1.7%, pharma up 1.1%. This is somewhat showing that the market mix is rotating into more defensive stocks rather than risk-on assets. While FMCG did not do well today, FMCG did well yesterday. But the gains on green days are seeming to be in IT, pharma, FMCG, and sometimes in consumption. Today, of course, infra, realty, and energy also rebounded back from their falls. But if I were to see on a weekly basis, FMCG is still rolling with the highest gains for the last one week, followed by consumption stocks, pharma stocks, and IT stocks. So there is a propensity to hide into defensive stocks rather than going into high-risk stocks, and that may be signaling that upsides may be capped to some extent and the sector rotation is on.
Sectors of the Day
Nifty IT Index
IT stocks like Coforge, LTI, Mindtree, Emphasis, Wipro, L&T Tech, Persistent, all gained more than 2%, and TCS and Infosys also gained some ground. The IT sector as a whole is very much near the previous all-time highs. It’s looking good. The IT index, you can see here, after a very long sort of consolidation, and sort of an inverse cup and handle also. So there could be a reasonably long way to go from here in IT. And IT has really done well given the fact that the IT index was near 10,000 at the bottom of the COVID-19 pandemic, and now we are sitting at 42,000 within four years.
Stocks of the Day
Prism Johnson
Stock spotlight is on Prism Johnson, up 19.6% today. After a long consolidation of eight or nine months, this stock is running very, very hard. The Prism Johnson chart, long-term chart shows how choppy this stock has been, with 60-80%, 84% drawdowns. Of course, those who held through these drawdowns have been rewarded quite well.
Story of the Day: Can the markets deliver 0% in 15 years?
There is no suggestion that the next 15 years are going to yield 0% returns. But has there been history of any market delivering 0% in 15 years? Yes. Has there been history of markets returning 0% in ten years? Yes. Five years? Definitely, yes. So you can’t rule out the fact that markets may have no returns for the next many years. It may start tomorrow, it may start in two years. Nobody knows. But that potential cannot be ruled out. And the only way really to navigate that is to not sit in the index, but to sit in a strategy that can actively try to gain strength out of the index.
So let’s now see the India market movement since the last 30-35 years. If I draw this channel, it is seemingly on a continuous upward path. So 2047, whatever the targets look like, we should be able to reach there. Nifty in 2047, even if we are in the middle of this channel, will be somewhere close to 200,000, based on this path. So maybe about nearly eight times is where we can reach in the next 20 years if we go on this path.
But there have been all kinds of markets. Sometimes having these assumptions that markets will continue to go like this, SIPs will continue to come, there will always be liquidity, despite very high valuations, stocks will continue to deliver. So once that continues to happen for one, two, three, four, five years, one can sort of fall into that trap of assuming that it will always happen like that, but it need not happen like that.
For instance, this chart from Freefincal that I’m referring to, they’ve calculated 15-year SIP XIRR in the S&P 500, and there are 1015-year periods. Each month you take a 15-year XIRR in the last 115 years. This data is from 1900 till 2015. It shows, of course, there were more such periods during World War I, the Great Depression, World War II, and also when the Vietnam War was there, the Gulf Crisis was there, and of course, the Lehman Crisis was there. There were periods and months where SIP returns over 15 years were zero. And of course, over time, that recovered. So the maximum 15-year SIP XIRR on the S&P 500 has reached 16% and the minimum has virtually been at zero. So there can be periods of, if not zero, then zero to 2% for long periods of time as per history.
And if we don’t go that far back, then maybe we can look at the China Blue Chip 100 index, which is now very near six or seven-year lows. And if the way this pattern is, a head and shoulders pattern, the target could even be much lower than the previous lows. So I am not suggesting that this can happen in the Indian market, but in the China market, it is already happening, and it has delivered very poor returns for the last 10-15 years already.
Even if I take a closer look at China, in 2021, it was at a 14-year low. So you cannot rule out the fact that markets can stay depressed for a long time. It’s better to be aware of what can happen and have your mind and strategy prepared for it.
What we are doing on the Momentum Meter is that you must be aligned to the current momentum. Even in markets that are giving you 0% returns, there are times when the momentum is there, and if you are in the right sector or right stocks, you may not deliver 15% or 20%, but you may still manage to survive those periods of 0% index returns, at least by going to cash and by being in the right stocks at the right time. So momentum is one way, and momentum meter helps you stay in the right zone for that, where you are aligned to the trend.
