The market reached a new high today at 25,100, though it was followed by a typical dip in the second half, reflecting the current trend of gradual yet cautious upward movement. While the market is making incremental progress, there’s no visible sentiment of a runaway rally, just a steady rise without bullish enthusiasm. Today, we’ll be discussing mutual funds, a topic you’ve likely encountered frequently. I’ll provide an objective view, looking at how mutual funds work for some investors while they may not be as effective for others.
Today, we will discuss an important subject: mutual funds. You’ve been hearing about this for a long time, and believe me, I am not going to trash any segment of the market just because it doesn’t suit me. Instead, we’ll take an objective view of how some aspects of mutual funds work for some people and how they may not work for others.
Market Overview
So, where is the market headed? The market is gradually inching up. At the end of the day, we hit 25,129. During the day, we recovered all the lost ground from August 1st, where, in three days, we lost almost 1,500 odd points due to the yen carry trade scare. However, in the last 27 days, that scare has gone away. We’ve had two scary moves since June 1st: the first was the election outcome, where people threw away their positions, fearing that a coalition government would not be able to function due to unreasonable demands from Mr. Nitish Kumar and Mr. Naidu. Somehow, that narrative has just vanished. Then came the yen carry trade scare, but 25 days later, that too is forgotten.
It is very clear that short-term moves based on short-term current events will impact the markets. But if the medium to long-term trend in the markets is sound, these short-term events will get absorbed, and the market moves on. That’s what we are seeing time and again. There isn’t much to talk about today, really, because there has been no major movement.
Nifty Next 50
Nifty Junior is also higher than the previous day at 0.3%, but it didn’t go anywhere, just hanging at the top. Now, there is a potential for a double top. If Nifty starts to come down from here, it technically becomes a double top, and the low then becomes the most important point. If we start to come down and this low gets broken, then a lot of algorithms, trend followers, and pivot followers will give a sell signal if we go below 23,800 odd now. However, if we break beyond the 25,000 range, then it’s a breakout, and the specter of a double top disappears.
Nifty Mid and Small Cap
Nifty Mid Caps are again very near the previous top, closing slightly negative at 0.14%. Just like I was mentioning the other day, Sachin and Sunil start to become very defensive near important points, and that’s what’s happening in mid caps too. Small caps broke out two days back, with a nice pop in the morning at 18,316, but it couldn’t sustain and dropped back to 18,180. So, small caps are still leading the other indices in the sense that they are not making a double top but have gone further beyond, ending at -0.22%.
Nifty Bank Overview
Bank Nifty is the weaker cousin, remaining below its 40-day moving average and struggling to get anywhere near the highs. We are just hanging where we were on June 1st. The narrative about banks’ margins getting squeezed, banks not being able to raise deposits, and the RBI Governor and Finance Minister discussing how people have moved their fixed deposits into the stock market is having an overhang on banking stocks. This is happening even when we are on the cusp of an interest rate cut, which should be extremely beneficial for the banks and the bonds they hold. But there seems to be no enthusiasm about that part of the narrative.
Momentum Trends
The advance-decline ratio was again in favor of declines today, with 300 declines to 199 advances, giving a 2:3 ratio—a bit weaker than the previous two sessions, where the advance-decline ratio was slightly more favorable. Some folks have continuously told us that we need to also look at the FII-DII trend. So, we’ve added back the FII-DII trends in a different format. Over the last four sessions, not including 28th August, FIIs have bought stocks, and DIIs have also bought stocks, except on 27th August. This could indicate a shift since 21st August, possibly after it became clear that interest rates are getting cut. This causes a significant change in how global funds view emerging markets. As US interest rates come down, funds will have to move to higher-risk assets to compensate for that dynamic. That’s probably why we’ve seen some FII inflows increase. But let’s see how long this sustains because FIIs have been on the sell side for a long time now. If FIIs continue to remain on the buy side, that’s a very good support for the market, allowing DIIs and local investors to book some profits. Let’s see where this goes from here.
Nifty Heatmap
Today’s heat map shows IT stocks doing quite well, especially Infosys and Wipro. Bharti Airtel was up by 2%, and L&T Mindtree by 6.5%. IT stocks ruled the sectors, and we will see that. Other than that, there were no major losses, but Maruti, ITC, Nestle, Titan, Adani stocks, and State Bank of India lost some ground. Nifty Next 50 was more somber, with Adani stocks, DLF, PNB, Siemens, HAL, VBL, and Zomato down. Zomato is coming up with very unique use cases—first launching the “book tickets for shows” feature and now allowing users to resell their tickets on the platform if their plans change. This is innovative thinking, but anyhow, we have been long on Zomato in many strategies since Rs 70-80, and we are happy that the company is doing well.
Stocks like Colgate-Palmolive, D-Mart, Trent, Naukri, Zydus, and Torrent Pharma also performed well, with Trent up 5.4% again. These mid-cap companies are doing well, although they are now large caps. There was no real fall in any of these stocks—just lethargic, gradual down moves because there is less enthusiasm here, as you can see.
Sectoral Overview
As I was mentioning, IT stocks led the rally with a 1.6% increase today, with Pharma giving good support. It’s a more defensive play with IT, Pharma, and consumption at the top. Meanwhile, PSU banks, FMCG, energy, and public sector enterprise stocks saw losses. It’s surprising that FMCG is not among the defensive stocks, but FMCG has done quite well over the last three months, with a 13.5% increase, so we can’t complain. Real estate and PSU banks have done the worst over the last month,
Sectors of the Day
Nifty IT Index
IT stocks have zoomed up, crossing some good benchmarks on the way to an all-time high. LTI Mindtree, L&T Tech, Wipro, Coforge, Infosys, Mphasis, and Persistent Systems are all doing well, especially on a day when Nvidia results are expected to impact the markets significantly. It seems quite a bold move by IT stocks, perhaps anticipating that Nvidia will outperform expectations and tomorrow we may see a gap-up in many stocks.
Stocks of the Day
NBCC
The stock spotlight is on NBCC, which was up 10% today. A lot of gains have been made on this stock. I remember when it was reeling at Rs 20-30 not so long ago, and nobody was giving it much of an outlook, given that it’s a public sector enterprise company. It was near Rs 10 for a significant part of 2013-14, then went up to nearly Rs 130 in 2018, and then crashed back to Rs 14-15. Now, from Rs 15, it has gone to Rs 195, breaking out just a few months ago. This is a logarithmic chart, so it looks a bit different, but for very long-term charts, it’s best to watch the moves on a logarithmic chart.
Story of the Day
Now, let’s come to the main discussion of the day: mutual funds. I would say it depends on who you are, what your intentions are, and what you are looking for from the funds. If you are a person who has no time for the markets, no interest in tracking your portfolio closely, then mutual funds have some advantages. You can give your money to someone else to manage, there are some tax advantages, and you can invest in very small bite sizes. These are some of the big advantages of mutual funds.
I was sitting with a friend yesterday, and he is a big mutual fund investor. I asked him who his fund manager was. He has three mutual funds but couldn’t name even a single one. The first question you should ask yourself is, do you know who is managing your money? Yes, you may know that it’s a big company like XYZ that has 500-600 funds under them, but do you know the manager? Do you know what his investing style is? Do you know his past track record? Do you know his outlook on the markets? If you do, then very good, but if you don’t, then you may be in for a rude shock later on.
Most people do not care about the fund manager’s view and investing style. If you are giving your hard-earned money to someone else, shouldn’t you at least know who they are? Would you hire a plumber to repair your pipes without knowing their credentials? Similarly, you need to know your fund manager’s investing style. Is it growth? Is it value? Is it momentum? This matters because each style performs differently in different market conditions.
