The end of the month—finally! Quite an eventful month where we had some sharp drawdowns at the beginning due to the Yen carry trade fiasco. Then, of course, a recovery from that bottom all the way to new highs, with the market stabilizing very near new highs now. It’s been a good month of gains for equities and a great close to the month today.
The Big Nifty 500 Myth Busted is Today’s Story.
We’ll talk about how the weightages in the big Nifty 500, CNX 500, are—well, you might think of Nifty 500 as a well-diversified index, representative of the top 500 stocks. But today’s data is going to shake you up.
Market Overview
Where is the Market Headed?
That is the question that I think almost everybody on the street asks anybody else who is stock market-related, and nobody really knows. That’s the real answer: nobody really knows. The markets create strengths—upwards, downwards, sideways—and those are our only clues about where the markets could be going. You can create predictions, you can create forecasts, but it is very, very difficult to be consistently right in your predictions and forecasts.
And what to talk about? I mean, 80% of active, knowledgeable, experienced fund managers also don’t beat the market. So nobody can really be said to be calling the markets right unless they follow some process or framework that by itself lends to profits in the markets.
Coming back to Nifty:
Nifty is nicely up 0.33% today, closing at a new all-time high of 25,235. It’s a great way to close the week. Last week we were just below this level, and today we’ve ended at 25,235, so three cheers for Nifty at an all-time high!
Nifty Next 50
Nifty Junior also closed the week at an all-time high—75,279 is the closing. It has recovered from yesterday’s slam-down in the morning and has closed at a new all-time high.
Nifty Mid and Small Cap
Nifty mid-caps are almost there, with the closing at a new high—up 0.85%. Not yet at an intraday all-time high, but almost about there. So, mid-caps are also gaining, and small-caps are sort of staying stagnant today, yet very, very close to all-time highs—up 0.5%. So, the entire market, from large-caps to mid-caps to small-caps, gained today and gained well.
Nifty Bank Overview
Nifty Bank also gained, closing slightly above this average that we have been struggling with at 51,351. So, banks also seem to be gradually coming out of the ice age that they have been living in for the last many weeks. Nifty Bank was up 0.39%. Remember, Nifty Bank is again at the same level where we were on exit poll day, and much lower than the all-time high. So, Nifty Bank is the laggard amongst all indices in terms of momentum trends.
Momentum Trends
You can see the advance-decline ratio for the day leaping up to 331 to 167. It’s kind of reversed from what it was yesterday—yesterday, it was 15 to 34, and today it is 33 to 16. So, the advance-decline is very much representative of what was happening in the market today.
FII and DII Trends
Strong FII buying on 29 August also, and today, incidentally, the MSCI changes are taking place. A lot of that buying actually has already happened in front-running, so we’ll wait for the numbers today. But yesterday’s numbers were very, very solid in terms of both DIIs and FIIs, so the fund flows continue to go into the market and not out of the market.
Nifty Heatmap
Today, Infosys and TCS were slightly up. The Bajaj twins did quite well. Reliance, surprisingly, after the 1:1 bonus meet announcement, had sprung up. There was a very nice pattern on the charts, but I think the market is becoming very mature. They realize that a bonus is nothing but an accounting entry, and Reliance has been slammed down by 0.74% today. Maybe it will gradually inch up, but usually, what happens on bonus announcements has not happened in Reliance this time. Maybe the expectation was already built in—can’t say. But it is quite unexpected to see a muted performance on the bonus announcement by Reliance. So, all those who jumped to buy Reliance on seeing the announcement have been caught on the wrong foot.
Mahindra and Mahindra, Aisha Motors, Hero Motors, and Bajaj Auto all gained slightly. Divi’s Lab, Cipla, and Sun Pharma were also up. Pharma has been doing well, as I’ve been mentioning. L&T, Bharti Airtel, and NTPC also did all right. So, overall, not a bad performance from most stocks.
Nifty Next 50:
You can see a very mixed performance here, but still, there are good patches of green. So, TVS Motors, United Spirits, HAL, Bosch, Shree Cement, Gale, DLF, ABB, Canara Bank gained ground. Some other stocks like Zomato, D-Mart, Marico lost some ground—a mixed bag here. But overall, quite remarkable how we’ve ended the week. Five days up! We are now, I think, about ten days on the trot going up. So, gradual ten sessions up and one big session down—that seems to be the sort of equation in the markets now. So any day, maybe a one down day can come around.
Sectoral Overview
Real estate, after a long time, has clocked 1.8% today. The monthly performance is still -4%, but the weekly performance is at number two. Pharma is doing very well at 1.5% today. The weekly performance is 3.1%, and the one-month performance is 7.8%. So, the best-performing sector for the last month is pharma, and it is the second-best performing over the last three months at 22%. So, amazing comeback from pharma.
Other than these two sectors, others were pretty much nowhere, ranging around 0.2% to 0.6%. FMCG continues to languish, which, as I mentioned earlier as well, is worrisome that FMCG is not participating. There seems to be some slowdown there. The K-shaped recovery is getting talked about a lot, where margins are getting squeezed for the lower strata, resulting in volume degrowth in FMCG.
The good part is that FMCG not doing so well and real estate doing very well shows that market money is willing to take risks and not go into hiding in safer places. So, that’s where I would get more enthusiastic about the market.
Sectors of the Day
Nifty Realty Index
Real estate stocks are doing really well—Prestige up 5%, Phoenix Mills up 3.5%, Oberoi Realty up 2.8%, DLF up 1.5%, Godrej Properties and Brigade also doing well. So, CNX Realty, the index, has started to move up, although a bit down from where it had reached, but a good day for the real estate index at 1.83%.
Stocks of the Day
One 97 Communication
Paytm has come out with a very nice move—up 12% today. It was very recently clobbered when some show-cause notice was issued. But, you know, every few days or weeks, there is a news event that happens with Paytm. So, it is rare to see Paytm up so much, but it is trading in the gap. So, gap moves can go very, very fast. From here to about 760-770 can be quite fast. I don’t know what is the current sort of news driving this, but nevertheless, if price is going there and capital is going there, something must be on the table for it to happen, and the price is discounting that.
In terms of longer-term charts, it hasn’t really helped most long-term investors so far, but from very recent lows, it has certainly doubled. So, if you were a falling knife picker and you were late to the party and picked the knife in May 2024, then you’ve really gained. Otherwise, if you were a falling knife picker from 2022 or early 2024, you would still be in the red. Nevertheless, a good recovery. None of our strategies currently seem to be picking Paytm, but maybe after it crosses 1000—if it crosses 1000—we may see some action on Paytm.
Story of the Day : Should we be wary of the AI Bubble?
The CNX 500 Nifty Index, which basically tracks the top 500 market cap stocks, has some myths around it regarding how the makeup of the index is, and we’ll bust those.
First, Peter Bernstein, an American educator and economist, said that diversification is not just about survival—it’s an aggressive strategy to capture unexpected windfalls. What he means here is that unless you diversify those asset classes or stocks, whichever diversification you’re looking at, the unexpected moves out of some of those can get lost if you’re not diversified.
You can argue both ways against it. You may say that investors can miss out on high returns due to inadequate portfolio weighting. So, this debate about how many stocks one should have, how many asset classes one should diversify in, and how much to allocate always remains complex.
In terms of the Nifty 500, we see that 50% of the stocks by number are small-caps, 30% are mid-caps, and 20% are large-caps. But when you look at the market cap weightage, 72.5% is large-caps, 17.8% is mid-caps, and only 9.7% is small-caps. So, if you think you’re investing in a very broad diversified Nifty 500, then the large-caps have 72.5% weightage. You’re basically investing in a large-cap index with a very small addition of mid- and small-caps.
So, if you want true diversification across small-, mid-, and large-caps, then you will have to look at the Nifty Equal Weight Index, where you’ll get 20% each in large-, mid-, and small-caps, and so on.
Performance Comparison:
The Nifty 500 Equal Weight Index has, in fact, outperformed the Nifty 500 Market Weighted Index across multiple time frames—1 year, 3 years, 5 years, 7 years, 10 years, and so on. Even if you look at the 5-year period, the Equal Weight Index has delivered 11.9% CAGR compared to 10.9% CAGR for the market-weighted index. So, the extra volatility that you get from an Equal Weight Index does translate into some additional returns.
The Equal Weight Index does carry more short-term volatility, but the longer-term return profile is better than that of a market-weighted index, and even the longer-term volatility across 5 years is very, very similar. So, this is where we are—an equal-weighted index will do better than a market-weighted index as it cuts down on the overweight positions that large-caps hold in an index.
Sectoral Performance:
If you look at the Nifty 500 by market weightage, financials take a lot of weight with 27%, whereas the equal-weight index has just 18% in financials. So, for example, if you’re getting too much sector exposure, like in the case of financials, then going for an equal-weight index may make more sense.
Final Thoughts:
So, here’s the deal: If you’re willing to let go of biases towards large-caps or over-concentration in certain sectors, moving towards an equal-weight index might be a smarter choice. The idea is to be as bias-free as possible, which many of our strategies are built around, and that can result in better long-term performance.
