Hello and welcome to the Weekend Investing Daily Bite. The series starts again today, November 18th, after a small break. The markets have remained relatively stagnant, continuing their downward move over the past few days. We’re now facing the question: are recovery or gloomy days ahead? I’ll share my perspective, which I think leans toward a more positive outlook. While the markets have pulled back after a strong rise, some tempering of the rally was expected. Of course, it’s easy to say that in hindsight, but I don’t believe any calamity has occurred that should make anyone panic.
Where is the market headed?
Market Overview
The markets have retraced back to the Election Day highs. This was one of the targets for the head-and-shoulders pattern that had formed, with a target around 23,300. We’ve essentially reached that point, and this level is now providing some support. However, it’s important to remember that no one can say for sure if this will be a turning point. As you know, the first real indication of a reversal would come if there’s a two-day high, but that didn’t materialize this time. We’ll need to wait for that.
The 200-day moving average (DMA) is badly broken, and the larger head-and-shoulders pattern—while somewhat irregular—has a target of nearly 21,300, which corresponds to the bottom of the Election Day candle. The Election Day week has become significant in terms of its high providing some support, and the bottom of the market is also crucial. If that level breaks, we could see further declines. So, that’s the situation as it stands.
The date for Maharashtra elections is Wednesday, November 20th, and that will be a trading holiday. The results will come out on November 23rd, but exit polls will likely cause market volatility before that. Exit polls often lead to sharp moves in the market, so expect violent swings on Thursday and Friday, or even a significant gap on Monday, depending on how those exit polls and the final results pan out.
The positive news we hope to hear is that the government gets a strong mandate, which would inspire confidence in the market. This would signal that the current government could continue without much political pressure. If the outcome isn’t as favorable, it won’t be a huge shock, as the market is already anticipating such a result.
The market has given up about five and a half months of gains, which is a reasonable correction in itself. However, markets can stay in a “no return” phase for long periods, as we saw in 2008, 2018, and 2020. It’s possible we could stay in such a phase for an extended period, so it’s important to manage expectations and not expect continual gains.
Nifty Next 50
Looking at the market indexes, Nifty Junior has already dropped to about a third of the Election Day candle’s range, and the pattern looks more bearish than bullish.
Nifty Mid and Small Cap
Midcaps and small caps have also been weak, with small caps faring slightly better, remaining higher than the Election Day highs for now, but that support has yet to be tested. Bank Nifty, similarly, has been in a “neither here nor there” kind of zone, giving zero returns over the last five months.
There could be a crisis brewing in the banking sector, particularly with interest rates. The government wants the Reserve Bank of India (RBI) to cut rates, but the RBI is resisting, and with the RBI Governor’s term coming to an end, it remains to be seen how that will play out. The U.S. Federal Reserve has already cut rates twice—by 50 basis points and 25 basis points—but this hasn’t impacted yields at all. In fact, yields have risen sharply, which is a concern, as inflation fears are still entrenched. It’s unclear whether further cuts will be possible in this environment.
Nifty Bank Overview
Bank Nifty also showed little movement, with a flat return of 0.37%. One area of concern is the potential for a banking or interest rate crisis. The government wants to cut interest rates, but the RBI is resistant to this. Moreover, the RBI Governor’s term is coming to an end, so it will be interesting to see how that situation unfolds. Meanwhile, the U.S. Federal Reserve has cut rates twice this year, but the yield curve has risen, signaling entrenched inflation concerns.
Advanced Declined Ratio Trends
Market momentum has mostly been negative, even though the market was somewhat flat. There were 3,177 declines compared to just 170 advances. Foreign investors continue to sell, though the pace has slowed significantly compared to earlier in the year. Last month, the selling volume was massive—around 1.56 lakh crores, but in the current month, it seems to have reduced to around 23,000 crores in just 18 days. This is a much smaller number compared to the selling in October. We might see this number continue to decrease going into December, or it could even turn positive, but time will tell.
Nifty Heatmap
Some of the stocks within the Nifty 50 index like Infosys, TCS, NTPC, Trent, Reliance, and Cipla were hammered today, with declines of almost 3% each. On the other hand, stocks in the commodity and metal sectors like Tata Steel, Vedanta, and Hindalco performed better, thanks in part to China proposing the removal of subsidies for exports, which could make Indian exports more competitive in the international market.
Sectoral Overview
Sectors of the Day
Nifty Metal Index
The metal index had a notable performance on the day. It was trying to find a bottom, as it hovered near the pivotal support level from the Election Day lows. Specifically, the metal index was up by about 1.9% on that day. The performance of metal stocks, such as Tata Steel, Vedanta, and Hindalco, was highlighted as a positive aspect of the market.
Stock of the Day
Godrej
Story of the Day
There are broader global concerns that are impacting the market. U.S. bond yields have been on the rise, even after the Fed’s rate cuts, which is worrying. If yields continue to rise, it will be hard to manage inflation and bring rates down, which could weigh on the markets. The strength of the U.S. Dollar is another concern, as it continues to rise, making it harder for emerging markets to attract capital. If the dollar continues to strengthen, liquidity will flow toward it, leaving emerging markets and commodities at a disadvantage.
The upcoming Maharashtra elections are a pivotal moment for the market, as a favorable outcome for the current government could provide a significant boost. The market is currently at a crucial support level, which could lead to a positive turn. If the market finds strength here, there is a reasonable probability of a recovery.
Looking at the broader picture, the Indian market has had a strong run over the past several years, with Nifty showing positive returns since 2015. This consistent growth has created a sense of security, where many investors expect the market to continue rising without major corrections. However, it’s important to remember that corrections are a natural part of the market cycle, and a slight downturn is not necessarily a bad thing.
In fact, a 10-15% correction after a strong run can set the stage for further growth. In the long term, the market remains on a strong trajectory, and patience is key. Investors need to think beyond short-term volatility and focus on the long-term growth potential.
A common mistake among retail investors is trying to time the market. Statistics show that the average retail investor stays in the market for only about 18 months, often entering near a market peak and exiting when the market shows no immediate returns. This behavior typically results in missed opportunities. Successful investors are those who weather the market corrections and stay invested through the ups and downs.
If you’ve been investing with a long-term strategy, it’s essential to stay committed even during periods of low returns. The market may be going through a temporary correction, but over time, it will likely resume its upward trajectory. Remember, a 10% correction in a market that has seen significant growth is normal.
