Where is the market headed?
The market remained relatively dull and flat today with no major moves. Although the day started on a weak note with the market dropping almost half a percent, it recovered significantly afterward to end the day on a very flat note.
Last night, rumors circulated that the US President might make a major announcement during an address to the nation. While the address was not as earth-shattering as some expected, it did repeat cues that the Federal Reserve chairman will be changed soon. Additionally, announcements were made regarding dole-out checks for ex-military and armed forces.
This sends a message that stimulus and direct checks are being provided to support the economy, especially as Christmas approaches and the US economy struggles. This appears to be a form of backdoor quantitative easing, as the market is being supported through other means such as an additional 40 billion dollars of debt raising happening every month.
Back home in India, there has been no news regarding the US-India tariff front, and the market is waiting for a specific trigger. Since it is the second half of December, the period is typically dull as many foreign investors go on holiday. Trading activity normally picks up again in the first week of January, so the market may remain in this state for a couple of weeks. Interestingly, the volatility index in the Indian market is at a historic low. This can be interpreted either as a sign of inactivity or as the calm before a storm if a significant event is on the horizon. As a standard disclaimer, all viewers are encouraged to read the full disclosure before moving forward.
A significant discussion recently took place on social media regarding a taxpayer table for long-term capital gains from the 23-24 assessment year.
Although the document is slightly dated, it provides a fascinating segmentation of tax filings. For instance, 75 million returns showed no capital gains, while 2.9 million returns showed gains between zero and 1.5 lakh. When looking at individuals, corporates, and HUFs combined, only 191 entities had long-term capital gains of 500 crores or more, and about 730 returns fell in the 100 to 500 crore bracket. This shows that the bulk of capital gains is highly concentrated.
The finance ministry and the income tax department could potentially use this data to perform a cost-benefit analysis. Instead of scrutinizing 8 crore returns, they could consider exempting long-term capital gains up to a certain limit, such as 1 crore. Doing so would dramatically reduce the number of returns they need to process—to less than one percent of the current total—without significantly harming tax collection. The 80-20 rule, or even a more concentrated 99.5 to 0.5 ratio, is clearly at play here.
Such a move could unshackle enthusiasm and bring more money into the market. While the current 12.5 percent tax rate is reasonable, removing the burden for smaller gains would change market sentiment. A similar logic could be applied to the Securities Transaction Tax, where a tiny fraction of entities contributes the vast majority of the volume.
Market Overview
The Nifty was absolutely flat today, closing at minus 0.01 percent.
Nifty Next 50
The Nifty Junior was mildly down by 0.36 percent but recovered significantly from its daily low.
Nifty Mid and Small Cap
Mid-caps rose by 0.2 percent, also recovering from the bottom, while small-caps ended at minus 0.11 percent. Charts for these segments showed long tails, which suggests that the market is willing to support these price levels for now. If this pattern continues for a few days, it often indicates an upward bias.
Bank Nifty
The Nifty Bank was also flat at minus 0.02 percent.
GOLD
In commodities, gold was down 0.46 percent at 13,296 per gram, and silver fell 0.6 percent to 2,02,788. Despite the slight dip, silver has gained significantly since the start of the month. If it closes green, it will mark eight straight months of gains—a first in history. This historical record suggests something fundamental may be changing in the system.
SILVER
Advance Decline Ratio
The advance-decline trends were not particularly strong at 204 to 296.
Heat Maps
The Nifty heat map showed some movement in IT stocks, while most other stocks were only slightly in the red or green. Larger drops were seen in IOC and Enrin, as well as Mother Son.
On the positive side, commodities like Hindustan Zinc and Vedanta continued to show strength, and pharma stocks like Divi’s Lab were up. Financials and PSU banks took a breather today.
Mover Of The Day
The mover of the day was HDFC AMC, which jumped 7.15 percent after SEBI revised the maximum cap AMCs pay to brokerages. This change is expected to lower operating costs and improve margins for AMCs, even if expense ratios for customers remain the same.
Sectoral Overview
Sector of the Day
Nifty Capital Market Index
Other capital market stocks like Nippon, Motilal, KFin Tech, and UTI Asset also performed well. The capital market sector chart is nearing a crucial pivotal point that could trigger a new wave higher.
U.S. Market
In contrast to the domestic recovery, US markets were in tatters yesterday. The NASDAQ lost 1.8 percent, the S&P fell 1.1 percent, and the Dow Jones was down 0.47 percent.
Major stocks saw significant losses, with Palantir dropping 5.5 percent and Oracle falling 5 percent. Oracle has now lost nearly 50 percent from its recent top, moving from 350 dollars down to near 170 dollars. AMD lost 5 percent, and Tesla fell 4.6 percent despite having just hit a new high. Caterpillar also dropped 4.59 percent.
It appears a “Santa rally” is not currently materializing in the US. Some of these stocks may be part of Weekend Investing strategies, but these mentions are strictly for information and are not recommendations.
Tweet Of The Day
Finally, a discussion on Sovereign Gold Bonds is warranted as another series was redeemed today after maturing over eight years. An initial investment of 2,840 rupees per unit was redeemed at a price of approximately 13,240 rupees. This resulted in a tax-free return of 21.22 percent, plus a 2.5 percent taxable interest paid annually.
For an investor in the 30 percent tax bracket, this equates to roughly 23 percent post-tax returns compounded over eight years. This is a remarkable example of asset allocation that was offered to the public by the Reserve Bank of India. Many average investors miss such opportunities due to a lack of awareness or reliance on hearsay. It is vital for investors to take control of their finances, diversify risk, and look for ways to maximize post-tax compounding, much like the successful tax-free bonds offered in the late 90s.
