Hello friends, and welcome to the Weekend Investing Dailybyte for the 19th of March. If you recall, at the end of February, we were reasonably confident that March would turn out to be a green month. As we progressed deeper into February, the probability of March being a positive month was steadily increasing. By the end of February, we had already witnessed five consecutive down months, which is a rare occurrence. And when five down months in a row happen, it usually indicates that a reversal might be on the horizon. The probability of a green March became very high, and that’s exactly what we are seeing now.

The market has started to thaw, and the selling pressure has eased. In fact, we even saw a Foreign Institutional Investor (FII) buying day in the previous session, and some confidence is returning. While we cannot say for sure if we’ve seen the bottom of the market yet, the current signs are encouraging. Typically, when markets make a bigger recovery, it is only afterward that we realize where the bottom occurred. Near the bottom, it’s always difficult to call it because both tops and bottoms are only clear when we’re far from them. So here we are today, seeing another green day. Today, we’ll discuss what happens when markets reach all-time highs and how pessimists often misguide us, even during an uptrend. Optimism in the market is a necessity to stay invested. Without it, it becomes almost impossible to remain in the market, especially during down days when you might question why you’re holding certain stocks.

Where is the market headed?

Market Overview

Currently, the market has reached a level of around 22,900, which was a key point we had discussed before. We saw a strong run of nearly 500 points followed by a flag pattern, and we’ve seen a pullback of about 400 points. We might still go up another 100 points to around 23,000. That will be the level where we may experience some confusion about whether the market will continue to rise or not.

In the short term, we are still seeing lower lows and lower highs, but from a daily perspective, we’ve broken a key pivot point on the higher side, which is positive for the bulls. It’s still too early to celebrate, but there’s hope. As of now, for the year, the market is down only about 500 points from the lows of last year. In fact, it’s just a couple of hundred points away from the November lows. So, there’s been a decent recovery. While we are not out of the woods yet, hopefully, we can continue to build on this foundation.

Nifty Next 50

The Nifty is up 0.3% today, with Nifty Junior performing even better, up 1.6%. Nifty Junior, composed of large-cap stocks, tends to behave differently from Nifty, and this is the beauty of this index.

Nifty Mid and Small Cap

Midcaps are up 2.3%, recovering to the January lows, while small caps have also risen by nearly 2%, forming an inverted head and shoulders pattern.

Nifty Bank Overview

Bank Nifty is up 0.79%, marking its third consecutive day of gains, and leading all the indices. It’s coming close to the November bottom that was breached earlier, which is a positive sign.

GOLD

Turning to the broader market, gold came off slightly by 0.3%, after hitting nearly ₹89,000. It has had an amazing run both in rupee terms and dollar terms, crossing $3,000.

Advance Decline Ratio

Market breadth is also positive, with a skew towards green, indicating more stocks are in the positive territory than negative.

Nifty Heatmap

On the Nifty heatmap, the picture is a bit mixed. While the IT sector saw a decline, similar to what happened with NASDAQ overnight, there were strong gains in HDFC Life, SBI Life, Shriram Finance, Coal India, Tata Steel, Wipro, and others. State Bank of India (SBI) was also up by 1%. The Nifty Next 50 was largely positive, with stocks like LIC, IRFC, DLF, Baroda, PNB, Siemens, Havels, and Tata Power showing strong gains.

Sectoral Overview

However, FMCG stocks have been sluggish, down by 0.6% for the day. Over the last month, FMCG has been flat with no growth and has even fallen by 11%. On the other hand, capital markets have rebounded strongly, up by 4% this week and 8.4% for the month.

Defense stocks have also shown a tremendous recovery, up 4.9% today and 14% for the month. Real estate, tourism, PSU banks, public sector enterprises, energy stocks, infrastructure, commodities, metals, oil and gas, and media all performed better than 1% today, showing a positive trend across various sectors.

Looking at performance over three months, some sectors are beginning to turn green, with metals leading at +2%, and financial services up by 1%. No sector is in the green on a six-month basis, but the changing dynamics suggest that we may see more green in the future.

Sectors of the Day

Nifty Defence Index

Story of the Day : Why pessimists will often misguide you, even during an uptrend.

The Nifty is still in a congestion zone between 21,700 and 22,900. We’re nearing 23,000, and once we break out, we could see further upward movement, possibly even towards 23,700. We are still a bit away from all-time highs—about 14.5%, which isn’t too far and definitely within reach.

The challenge is that whenever the market enters an uptrend or approaches a new all-time high, there’s usually a lot of pessimism. People begin to raise concerns about high valuations, earnings lagging behind, liquidity-driven rallies, and mismatches with real GDP growth. These narratives can create skepticism and panic, even when the market is in an uptrend.

The problem with being near all-time highs is that most people—around 8 out of 10—will want to get out. They won’t want to invest or hold on to their positions as the market approaches or hits an all-time high. This behavior stems from human psychology, where the previous top is often seen as the final destination. If the market reaches a new high, people may believe that it’s time to exit, but in reality, this is almost always the wrong move.

Historical Data on All-Time Highs

Let’s take a look at some data from the last 35 years regarding all-time highs. If you examine the number of days when Nifty made an all-time high since 1989, you’ll see that, barring the decade from 1993 to 2002, every few years has seen substantial runs, with nearly 20% of the year made up of all-time high days. When we look at large, mid, and small caps separately, we notice that large caps tend to make all-time highs more frequently, mid-caps less so, and small caps even less. But still, large caps continue to hit new highs almost every year.

While large caps usually hit new highs consistently, the same cannot be said for mid-caps and small caps. However, this doesn’t mean that they won’t eventually experience all-time highs again. For example, in the period from 2004 to 2008, small caps surged by 6x, followed by a correction. Similarly, after COVID-19, small caps began to recover sharply, with some significant moves since 2021.

Momentum in All-Time Highs

The key takeaway here is that all-time highs often occur in clusters. Once a stock, sector, or index hits an all-time high, it is likely to continue doing so until it eventually cools off. If you take gold as an example, it has been hitting all-time highs continuously for the past 15 months. Had you exited after its first all-time high, you would have missed out on significant gains.

So, when you see stocks, sectors, or indices hitting all-time highs, don’t be afraid of them. Instead of running away, focus on momentum and ride the trend. All-time highs should not be a reason to avoid investing. They are often followed by a series of all-time highs, and momentum can persist for extended periods.

Conclusion

In summary, all-time highs are not something to fear but rather to embrace. They often signal strong momentum and the potential for further gains. As the market continues to evolve, don’t let pessimism cloud your judgment. Focus on the momentum and ride the wave.

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