It’s a day that we were dreading for the last few sessions, particularly concerning the right shoulder of the Nifty head and shoulders pattern. We will discuss that today, as well as a brand new asset class that SEBI has recommended. What is this all about? What kind of strategies will this entail, and what are the upsides and downsides of this new asset class?
Where is the market headed?
Market Overview
The markets have been somewhat stagnant for the last five to six sessions, and today it seems the resumption of the downtrend has started. We are at a critical level, the Lakshman Rekha of the head and shoulders pattern. You can see there’s a left shoulder, a head, and now a right shoulder has formed. It remains to be seen whether the neckline will get breached. If it does, we could potentially see a decline of around 1600 points, which would target about 23,000. This is the conventional outcome of a head and shoulders pattern, although these patterns can fail as well.
However, the current probability suggests that we are headed down. We might be fortunate to escape this situation. The market seems to be signaling a cool-off in October. Perhaps we will stabilize until Diwali and then start a new upward leg, or we might not have such a bright Diwali. We’ll soon find out. If you look at the charts, the bounce from the recent fall has not even covered the average, and despite one day’s upward movement, it didn’t close above a two-day high. This lack of movement indicates that a correction is likely underway.
Nifty Next 50
The Nifty Next 50 also fell sharply today, down 2.23%. It was a waterfall kind of decline.
Nifty Mid and Small Cap
Mid caps dropped by 1.66%, covering the gap we had seen previously, while small caps also collapsed by 1.4%. That said, small caps still appear to be in better shape than large caps. However, if large caps continue on this downward trajectory, small caps will likely not be spared either. This is just my gut feeling—there’s no forecasting involved.
Nifty Bank Overview
The Bank Nifty is also struggling, unable to clear the average and collapsing from there, currently down 0.99%.
Advanced Declined Ratio Trends
The advanced decline figures reflect the same trend, with 428 declines to just 70 advances—no stocks are really showing strength. Foreign institutional investors (FIIs) continue to sell, with ₹3,400 crores of selling, while domestic institutional investors (DIIs) have been buying, albeit less than what has been sold, totaling ₹2,200 crores.
Nifty Heatmap
The heat map is largely red today. Infosys tried its best, along with State Bank of India and Tech Mahindra, to hold the market up, but Bajaj Auto led the decline, plummeting 12.9%. This reflects concerns about auto inventory piling up unless we experience a great festive season. The auto sector is in a short-term risk scenario. Other stocks like UltraTech, Mahindra & Mahindra, and Nestle also saw declines of around 3.3%.
When you are sitting on hefty valuations and over-owned stocks, any small piece of bad news can result in significant negative impact. Bad news surrounding rural consumption has been circulating, with two-wheelers not selling and FMCG not showing the expected volume growth, leading to this market correction. HDFC Bank, as is often the case, fell with the first signs of trouble, down 1.57%, while Axis Bank dropped 1.8% and ICICI Bank by 0.96%. Bharti Airtel was down 1.89% as well. There was nowhere to hide in this market, except for a couple of stocks in IT and Reliance.
The Nifty Next 50 also saw a complete washout, with stocks like Lodha, DLF, Adani Power, Siemens, and Vedanta all significantly down.
Sectoral Overview
Sectoral trends reflect all red, except for IT, which gained 1.2%. Real estate plummeted by 3.8%, wiping out its earlier gains from the week. The auto sector was down 3.5% in a single day, a considerable cut, while consumption stocks fell 2.4%. FMCG also declined by 1.6%, and even the pharma sector is not immune, down 0.9%.
Sectors of the Day
Nifty IT Index
On a positive note, the IT index is making new highs, perhaps buoyed by positive performances in the U.S. tech stocks. Infosys, for example, is up 5.8%.
Stock of the Day
Karur Vysya Bank
Karur Vysya Bank stood out today, gaining 6.18% amidst this market turmoil and consistently making new highs over a longer period.
Story of the Day
Now, turning to SEBI’s brand new asset class—this is our main discussion today. We know about mutual funds, where you can start with as little as ₹500 a month. On the other end, there are Portfolio Managers (PMs) and Alternative Investment Funds (AIFs), where you need at least ₹50 lakhs for a PM and ₹1 crore for an AIF. This creates a big gap in the market.
What is this new asset class? SEBI’s recent meeting has mentioned that it focuses on strategy, unlike plain vanilla mutual funds. These will be strategies run by asset management companies that are not limited to just large-cap or mid-cap mutual funds. They may include complex strategies, like a large-cap long Nifty futures short strategy or even inverse ETFs.
These strategies are popular in the U.S. and might include a Nifty inverse 2x ETF, meaning that if the Nifty goes up 1%, this strategy could go down 2%, and vice versa. This new asset class offers more options for serious investors who don’t want to limit themselves to standard mutual fund exposure but cannot afford the minimum investments required for PMs or AIFs.
The benefits of this new asset class include better risk-adjusted returns, more liquidity and flexibility since these funds will be listed on exchanges, and lower entry barriers—targeting investments of around ₹10 lakhs to ₹50 lakhs, making it more accessible than PMs or AIFs.
However, there are downsides. The expense ratios may be higher due to active management and strategy complexity, requiring more understanding from investors. Moreover, despite the appeal of fancy strategies, most hedge funds and similar vehicles don’t outperform the market. Just creating complex strategies does not guarantee better performance; it often turns into a fee collection mechanism.
Should you consider these new asset classes as they become available? Yes, but keep in mind that while they may be marketed as sophisticated and likely to yield higher returns, there is no guarantee of better performance. They simply represent another option in your quest for better outcomes.
It’s essential to note that there’s no track record for these new strategies, so investing in them can feel like a leap into the unknown. For users with ₹10 to ₹50 lakhs of capital, consider existing alternatives. We already have small cases in the market, which have been effective for many investors over the years. Weekend Investing itself has been around for over seven years, and many small cases are doing well.
There is a significant gap in knowledge and understanding among many investors regarding what is available in the markets. I believe these new asset class options will also emerge, but we must approach them with caution. Many of these will involve leveraged plays, utilizing futures and options.
