This is a short week, and we will have a holiday tomorrow. So, markets were dull today but nevertheless still lost ground. The US markets are falling now, and that is not inspiring confidence here as well. The FIs continue to sell. There is no real good news on any front, so we’re just waiting and watching for any positive trigger to come by. The market is gradually going towards its next equilibrium, wherever it is, hopefully not too far from here, and the liquidity in the system is getting pumped by RBI. The rupee is falling, went to 87.20 today, and basically, there is absolutely no trigger on the horizon right now. Some catalyst will need to come to really wake up the animal spirits in the market.

Today we are going to talk about another sort of way of investing that should not be done. We will talk more about this towards the end. The topic is “Your investments could disappear if you don’t.”

Where is the market headed?

Market Overview

As you can see, yesterday we had a gap down. The market is weak enough to not even attempt a gap fill from yesterday. We remained largely in the range of yesterday’s candle, and in the last about 15 sessions, there has been no attempt to close even at a two-day high. So, extremely weak markets. We are already at 22,521-800 odd, which is the sort of consensus for at least some interim bottom, and then we will see where we go. But the market is definitely oversold and can bounce anytime within three sessions. You can see a 1,000-point run anytime, you know, but it needs a trigger which is at least not evident on the horizon. Nifty still closing at minus 0.03%, so not so bad. It lost some ground in the broader market.

Nifty Next 50

Nifty Jr. was down 0.74%, still not at a new low of recent times.

Nifty Mid and Small Cap

Nifty mid-caps were also down half a percent within yesterday’s range. Small caps were also down nearly half a percent within yesterday’s range. So, a very, very dull day. Tomorrow being a holiday, nobody wants you to take a larger position. US markets have also started to come off.

Nifty Bank Overview

Bank Nifty did try to go above yesterday’s high but succumbed to the pressures there and closed exactly where we were yesterday, down 0.09%.

GOLD

Gold continues to move up. We are now very near 87,000 on 10 grams, up 0.18%

Advanced Declined Ratio Trends

the market breadth is largely weak, I would say, with a 1/4 to 3/4 advancing in Nifty 500: 181 advances to 317. Slightly better than yesterday, but nothing positive really.

Nifty Heatmap

Within the Nifty heat map, you saw sporadic stocks like Bharti Airtel, Bajaj Finance, Mahindra, and Maruti take some corrective move upwards. But significantly, TCS continued to fall. Hindalco fell 3.8%. Trent was falling. Dr. Reddy’s was down. ONGC, Reliance, SBI, Tata Motors, Coal India—these were all down as well. ITC and IndusInd Lever, along with Nestle, seem to now be bucking the trend in the last few sessions. Adani Power was the one in major green territory today, up 5.8%. Hevels was up 1.6%, along with BHCL. And you had some deep cuts on Varun Beverages, Vedanta, JSW Energy, Bajaj Holding, DLF, LIC, REC, Banco Baroda, ABB, Indigo, HAL, LTIM, Pidilite, etc. So, largely a selling sort of situation.

Jio is coming out with their soft drinks, and Varun Beverages is probably getting impacted due to that.

Sectoral Overview

Sectoral trends: metals down 1.48%, real estate down 1.23%, and PSU banks down 1.15%. Others were sort of in no-man’s land. Media was up 1%. Autos, FMCG, and MNC stocks bucked the trend to some extent within the last one week. Now, Pharma and IT are the two major losers. You also have metals and the central public sector enterprise stocks doing the best in the last one week. Media is largely driven by Z and Sare Gama, etc. Some of the stocks have really gone down. I think some of this data is probably not correct for the day, but the media stocks have held their ground in the last four or five sessions.

Sectors of the Day

Nifty Media Index

Story of the Day : “Your investments could disappear if you don’t.”

It is not the strongest of the species that survive, nor the most intelligent that survives. It is one of the most adaptable to change. So, Darwin’s theory basically states that either you will adapt to the changing situations, or you will not survive. That is very much applicable in the market as well. Those who stay adamant about their stocks or about their thesis without realizing that the market is changing, or maybe the sector is changing, or maybe the leadership in that particular sector is changing, are going to succumb and not survive. While those who will adapt to the changing marketplace, whether it is a downward market or upward market, which sectors in the market are performing, which stocks of which sector are performing—such adaptation is very, very essential to really win in the marketplace.

So, what is survivorship bias? This is basically a tendency to view the performance of existing stocks and assume that these were the stocks that have always been there. But the reality is that the stocks you see today have survived all the onslaughts of the market in the past. Several stocks that have not survived are not even there in front of you. So, our view about the market today is incomplete if we don’t look at the stocks that started 10 years ago, 20 years ago, 30 years ago, 40 years ago, and could not survive this time. We could have been invested in those stocks also today. When we look at today’s performers and say, “Oh, we should have bought it in 2008, we should have bought Infosys at that point, we should have bought Wipro at that point,” these are the survivors of the market. You cannot base your thesis on the survivors. You have to actually go and see what the exact nature and composition of the market was.

This is a classical survivorship bias study. In the Second World War, when the planes were coming back after an attack on them to the military bases, it was studied that the most bullets were in the tail area or on the wings. They reinforced those areas to make sure there would be lesser damage. They did not consider the fact that there would be a significant number of other planes that never came back to the bases. The mathematicians assumed that all the hits were happening only in those areas of the survivors. So, that is the classical example of how not to see the current set as a real set, but as only the surviving species out of the entire thesis.

Just again, simply when you say something like, “Bill Gates, Steve Jobs, and Mark Zuckerberg dropped out of college and became wildly successful,” right? So, that cannot become the norm that, “If you drop out of college, then success is likely to happen.” But, for most college dropouts, it means unemployment and having more immediate student debt. So, Bill Gates, Steve Jobs, and Mark Zuckerberg may be the survivors of the difficult race of going from college to later on. Similarly, in sports, players like Messi, Ronaldo, and Neymar are getting paid highly as football players. But the truth is that 99.99% of players who start off from school level, university level, club level, and national level never really make it to the final level of the game in their lifetime. So, you never consider them as part of the current mix. And you say, “If I were Messi, I would be making so much money.” The same applies to companies.

Companies are becoming hyper-competitive, and the average company lifespan on the S&P 500 in the last 60 odd years is also reducing. It used to be 35-40 years at one point in time that an average company would last that much. Now, it is down to teens. So, an average company does not last 20 years right now from that perspective. And hence, you cannot rely on today’s set of companies to give you those results 10 or 20 years later because it’s a very dynamic world. It may not survive.

Let’s look at this list from Equity Master. This is showing you a list of 30 stocks, the original composition of the Sensex when it was compiled in 1986. There are stocks like Balarpur Industries, Indian Rayon, Indian Organics, Premier Auto, Pico Electronics, and Mukand Limited. Several of these stocks either have vanished or did not perform so well in the long term. This era is dynamic. There will be market disruptions, technology disruptions, different styles of management, and different companies having an advantage of low-cost capital or geographical advantages. The composition of the indices will evolve over time.

In 1980, there was textile dominance. At that point of time, textile stocks led the Sensex with a 24% weight. Can you imagine that now? Major groups were the legacy of major groups, like Tata, Birla, and Reliance. They began their journey in textiles with iconic brands like Sarap Bhais, Modis, and Mafatlals, but those have vanished away. By 1992, the Sensex had transformed into a more energy-oriented index, with new companies coming in. By 1992, the market cap was concentrated by Tatas and Birlas, accounting for 45% of the Sensex market cap. There was no financial services or IT at that time, but a decade later, companies in those sectors came to prominence. Then, by 2012, the Sensex changed again, with banking, finance, pharma, and IT dominating the index.

Now, in 2022, there were more shifts. Banking stocks with assets of 2.9 lakh crores grew 57 times over these 30 years. Private banks and finance companies became more and more dominant in the Sensex. Nine out of 30 Sensex companies were from banking and finance, and since 2012, five new financial firms—Axis Bank, Bajaj Finance, Bajaj Finserv, IndusInd, and Kotak Mahindra—have been added to the Sensex.

So, you can see how dynamically, from time to time, the index is changing. There are stocks that survive, and there are stocks that we don’t talk about today because they have not survived even in the Nifty. If you go back, you will see stocks like Unitech, India Bulls, and many more that have vanished from the index, and we never talk about them. But had you invested in those stocks, considering them as leaders of that time and blindly held on to them, your portfolio would not be the same as it is today.

So, what will be those sectors that will perform in the next many decades? What will be the sectors that will come into the index? We don’t know that, right? While the world is constantly evolving, we need to keep adapting to the change. So, if we don’t adapt, we perish, basically. If we become adamant about investing in only five stocks and don’t really care, you may wait for five years or ten years for those stocks to perform, but after 10 years, you may realize that you should have made this adaptation five, seven, or eight years ago, and you have lost seven or eight years of precious opportunity cost of your capital.

So, the approach to the market also has to be adaptive in nature. Momentum strategies, of course, adapt to the changes. As it happens, when markets come down, they will go to cash or they will go to relatively stronger stocks. And then, once the market takes off, they will again allocate to stocks or go into stocks that are doing well, regardless of which sectors take off. The new sectors that take off will be the first in your portfolio because you are not fixated upon any particular sector or any particular stock, and you remain agnostic to that.

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