It’s been quite an eventful day, not just locally but globally. The Japanese market has crashed very hard today, down nearly 6%, marking the worst day for Japanese stocks since 1987. This has had repercussions all over Asia, initiated by the Fed’s indication of a rate cut a couple of days back. Although the rate wasn’t cut that day, the statement that a cut is likely in September led to falling yields, which caused the carry trade in yen to unwind. We’ll discuss this in more detail in the middle of the session.
The main subject I want to address today is a lesser-known index that many people are missing. We’ll discuss some data about this fantastic index in the second half
Market Overview
So where are the markets headed? The market had a significant decline. Why am I saying significant? Because there was no chance of any recovery during the day. It opened lower at 24,800 and stayed there, fluctuating by plus or minus 50 points for the whole day, before dropping again to 24,717. A good decline after a long time can sometimes be beneficial to let off some steam. Even if it continues to drop a bit, it’s no big deal. It’s essential to tune our minds away from this day-to-day business.
Nifty collapsed 1.17% today.
Nikkei Index
The Nikkei 225, the Japanese index, was down 5.8%, with sharp cuts over the last two sessions. This decline started after the Fed’s meeting and statement, leading to a massive drop the next day for the Nikkei, followed by another big drop today.
US 10 Y Bonds
Yields are collapsing, with the 10-year US yield dropping rapidly from 4.3% to 3.9% in the last week, anticipating the rate cut. When US yields come down, they become less attractive compared to other currency yields, causing the reversal of carry trade. Investors who borrowed in yen to invest in Japanese equity are closing their positions as the yen strengthens against the US dollar. This complicated trade unwinding by hedge funds is causing major falls in the Japanese equity market.
GOLD / USD
Gold has bounced very hard and is now close to an all-time high again at $2,462
Nifty Next 50
Coming back to our local markets, the Nifty Junior fell 1.3%. These falls are currently not very consequential.
Nifty Mid and Small Cap
Mid-caps also dropped 1%, losing a week’s gains but nothing more. Small caps have returned to their range from a couple of days ago, down 0.83%. Despite Nifty’s significant fall, the smaller caps restricting their losses to less than 1% is a good sign.
Nifty Bank Overview
Bank Nifty didn’t fall much at all, down just 0.4%, which is encouraging.
Nifty Heatmap
Today’s heat map was all red. Interestingly, HDFC Bank was up 1.2%, alongside minor gains in Sun Pharma, Nestle, and Kotak Bank. Deep cuts were seen in State Bank of India, ICICI Bank, Axis Bank, Tata Motors, and the auto sector. The government announced no increase in EV subsidies and no expansion of the PLI scheme, impacting the auto sector. Steel and cement stocks were also hit, along with energy stocks like ONGC and Coal India. Today was a day for profit booking and closing positions for short-term traders.
In the Nifty Next 50, there were some spots of green. Zomato rose 12% following impressive results, and Naukri, holding a significant stake in Zomato, was up 4.5%. Minor gains were seen in Zydus Life, Torrent Pharma, Pidilite, and IRFC. However, DLF, PFC, REC, Siemens, ABB, Vedanta, and Trent were down. Trent, which has been strong, fell 4%. The psychological barrier of 25,000 for Nifty may have created a temporary top.
Sectoral Overview
Sectoral trends showed all sectors in the red. Real estate fell the most at 3.5%, followed by autos at 3%, metals at 2.7%, and IT at 2.4%. Pharma eked out a small gain of 0.5%, but there was no place to hide, resulting in weekly and monthly gains being wiped out for some sectors.
Sectors of the Day
Nifty REALTY Index
Stocks of the Day
Zomato
The spotlight is on Zomato, which soared 12% today, closing at 226. The stock has more than doubled investors’ money, showcasing an impressive turnaround by the management.
Story of the Day
Now, let’s discuss the Nifty Junior index, which many investors overlook. Over the last 27 years, the Nifty Junior has outperformed the Nifty 50. The Nifty Junior, comprised of the Nifty Next 50 stocks, has shown higher CAGR across multiple timeframes compared to the Nifty 50. For instance, the one-year CAGR for the Nifty Junior is 65% compared to Nifty’s 28%. The Nifty Junior consistently outperforms Nifty across three, five, ten, and fifteen-year periods.
Performance-wise, the Nifty Junior has a greater number of stocks achieving higher returns compared to the Nifty 50. For example, ten stocks in the Nifty Next 50 have gone up more than 100% in the last twelve months. The breadth of winners in the Nifty Next 50 is higher, making it a compelling index to consider.
The best performers from the Nifty Junior often graduate to the Nifty, where their performance dynamics change. Once these stocks move to Nifty, they tend to underperform compared to their previous performance in the Nifty Junior. Similarly, stocks that fall from Nifty to Nifty Junior often start performing well again.
Do you have any exposure to the Nifty Junior index? If not, would you consider adding it to your portfolio? Let us know your experiences with Nifty versus Nifty Next 50.
