There is nervousness in the market ahead of the budget again, and rumors are circulating that some taxation changes may be coming. People are considering selling stocks that have recently surged, like defense stocks and public sector enterprises. Chaos was prevalent in the market today. Let’s discuss the truth behind high-quality stocks from a momentum perspective
Market Overview
The market has done almost a bearish engulf of the huge move yesterday, despite Infosys’ ADRs going up 5-8%. Expectations for Nifty to soar today were unmet, with Nifty down nearly 1.09%
Nifty Next 50
Nifty Junior down 2.4%. We are now down almost 4-5% from the top, nearing the 40-week, 40-day moving average. A bounce back is likely as we approach the budget, driven by positive expectations.
Nifty Mid and Small Cap
Mid caps are down 2.09%, and the breakout has failed, bringing us back into the congestion zone. Small caps have also lost significant ground at 2.36%.
Nifty Bank Overview
When viewed in the context of the recent rise, the fall is still relatively small. Bank Nifty, surprisingly, was very shallow within yesterday’s range and hasn’t fallen much compared to others, down only slightly.
Nifty Heatmap
Today’s heat map is mostly red, with Infosys managing a 1.9% gain. Coal India, ONGC, Wipro, Tata Motors, NTPC, Reliance, Mahindra, and more were beaten down by 1-4%, with metals like Tata Steel and JSW Steel experiencing a significant drop of around 4.9% and 4% respectively.
Nifty Next 50 stocks also saw substantial red, with hard-hit stocks like Siemens, ABB, Motherson, DLF, PFC, REC, HL, and BL.
Sectoral Overview
Sectoral trends show all red, with metals losing 4% in a day, public sector enterprises down 3.2%, commodities down 3%, energy down 2%, autos down 2.4%, and real estate down 2.4%. Only IT and FMCG were relatively unscathed, indicating a move towards defensives and profit-taking in other sectors.
If a stock has gone up 100% in the last year, corrections are inevitable. We haven’t had a decent correction in the past year and a half, so a sharp correction at any point is always possible
Sectors of the Day
Nifty IT Index
IT stocks didn’t fall as much, with Persistent and Wipro experiencing minor drops. Overall, IT was down only 0.22%, and the IT chart still looks strong compared to other sectors.
Stocks of the Day
Infosys
In terms of stock spotlight, Infosys’ Q1 result came out post-market yesterday, showing a profit jump of 7%, which led to a bit of a jump today. However, the market is waiting for a breakout, and Nasdaq stocks are not doing well, so IT stocks may have to wait for a while before taking off.
Story of the Day
The truth behind high-quality stocks is what we will explore today. It’s essential to understand that perceived high-quality stocks can sometimes lead to poor outcomes due to our behavior. For example, investing INR 1 lakh in Reliance in 1994 would be worth INR 1.2 crores today, a 120x gain with a 17% CAGR. However, this journey was not easy. For instance, INR 1 lakh invested in Reliance in January 2008 would be worth the same INR 1 lakh by March 2017, with a 64% fall during this period.
A longer perspective shows a fantastic run from 1999 to 2008, followed by a ten-year limbo before another significant gain. Living through such periods and holding on is crucial but challenging. The same applies to stocks like Hindustan Lever, which took ten years to break out of a range after a significant rise, or Wipro, which took 21 years to recover and then double. The journey for high-quality stocks is not always smooth, and holding through tough times is critical.
Buy and hold suits those with enormous patience and a long-term vision, but most people today seek shorter gratification and smoother journeys. A strategy where you periodically eliminate losers and stay with winners ensures a better feeling about your portfolio. Cutting losses and riding winners is the way to go, rather than hoping and praying for underperforming stocks to recover.
