Where is the market headed?

With only one day remaining in the year, it is a good time to reflect on the market’s performance. This year has been a period of consolidation and has felt relatively slow compared to the heavy lifting seen in previous years. However, a consolidation year is not a bad deal, as investors often feel the market is underperforming only because they focus on the very short term. When looking at the story that has played out over a five or six-year period, there is very little reason for complaint. Before moving forward, readers are encouraged to fully read and understand the standard disclaimer provided with this information.

Looking back at the pre-Covid days of January 2020, the market was stable with the Nifty near the 12,000 level. Since that point, the market has navigated the Covid hit and the subsequent recovery. In the six years that have passed since January 1, 2020, the Nifty is up 111%, which translates to a compounded annual growth rate of 13.2%. This is a strong performance considering the historical average for the Nifty is 12.7% before dividends. During this same six-year period, mid-caps have risen 211% with a CAGR of 20.8%, and small caps have gained 193%, maintaining a CAGR of nearly 20% even after the consolidation and corrections of the last 15 months. Micro-caps are likely at a CAGR of 25% over the last six years despite the recent falls.

The right perspective is essential to assess market health. Judging the market based only on the last nine to 15 months is often misleading because returns are typically lumpy. Cycles usually consist of two years of very high returns followed by a three-year lull. This is the mindset one should adopt when looking back at 2025 and looking forward to 2026. The current 15-month period of consolidation represents a healthy time correction. It suggests that the market is 15 months closer to a potential bottom from which it can begin to move upward again, which serves as a silver lining for investors.

Market Overview

The Nifty reached a low of 25,878 during the day but recovered about 50 to 60 points from that level by the close. This marks the fifth day of general listlessness and weakness. Recent momentum scores have been added to the market charts for clarity. For the Nifty, the short-term and mid-term momentum scores are currently negative, while the long-term momentum remains positive. This indicates that while there may be more downward moves in the immediate future, the long-term trend is still looking up.

Nifty Next 50

The Nifty Junior also remained flat with a minor gain of 0.04%. Its short-term move is negative, though the mid and long-term outlooks appear positive.

Nifty Mid and Small Cap

In the mid-cap space, the market saw its fifth day of downward movement with a recovery from the bottom to close at minus 0.18%. Here, the short and mid-term momentum is negative, while the long-term stays positive. Small caps moved down 0.2%, showing negative short-term and long-term scores, though the midterm is currently positive. The negative long-term sign for small caps is a point of note.

Bank Nifty

Nifty Banks, however, moved up 0.41% with positive short and long-term momentum, even though the medium term remains in negative or range-bound territory.

GOLD

Gold has seen its short-term momentum turn negative, but its mid-term and long-term trends are very positive. Gold rose 0.77% today after a significant cut yesterday. As the rally in gold matures, investors should expect sharp, intermittent cuts like those seen in October, November, and December, yet the overall market continues to climb. Gold currently sits at the 13,231 level after nearly reaching 13,900.

SILVER

Silver experienced a major crash yesterday, opening 5% to 6% higher before dropping 10%, but it is up 3.5% today. Despite the volatility, silver’s short, mid, and long-term momentum all remain positive on the charts.

Advance Decline Ratio

The trend for advances and declines showed that advances rose during the first half of the day before flattening out. By the end of the day, the breadth was poor with 158 advances compared to 342 declines.

Heat Maps

Significant cuts were seen in technology, energy, and some FMCG stocks. On the positive side, gains were recorded in Bharti, Mahindra and Mahindra, Bajaj Auto, Tata Steel, JSW Steel, State Bank, Axis Bank, and Shriram Finance.

In the Nifty Next 50 heat map, companies like Adani Power, Jindal Power, Jindal Stainless, Vedanta, TVS Motors, PNB, and Canara Bank did well. Losses were noted in stocks like ABB, Siemens, Mazdoc, which lost 3%, as well as DLF, IRFC, ITC, REC, and Naukri.

Mover Of The Day

Hind Copper is currently moving very rapidly, climbing from 375 to almost 550 in about a week. After a big gap up and subsequent closing of that gap yesterday, it rose 9.42% today to reach 533. A disclaimer is noted here that Hind Copper is held in several company strategies.

Sectoral Overview

Regarding sectoral trends, Nifty Metal led the market with a 2% gain, while the Nifty PSU Bank sector went up 1.69%. Autos also gained 1% ahead of their monthly numbers. Conversely, Nifty IT, Real Estate, Capital Markets, Tourism, and Defense were down, with Defense losing 1% on the day.

Sector of the Day

Nifty Metal Index

In the metal space, Hind Copper, National Aluminium, Steel Authority, Jindal Stainless, and NMDC are all moving up and reaching new all-time highs. It is always useful to identify sectors making new highs as they represent the current market leadership.

Nifty PSU Bank Index

PSU banks are also performing strongly, with the PSU banking index chart showing a leadership pattern that differs from the general market. Stocks like Indian Overseas Bank, Bank of Maharashtra, Indian Bank, Canara Bank, and Bank of Baroda all showed strength today.

U.S. Market

In the previous US market session, all major indices were down between 0.3% and 0.6%. Tesla crashed 3.2%, Palantir dropped 2.4%, and financial stocks like Citigroup, Goldman Sachs, and American Express fell between 1% and 2%. Some of these stocks may be part of the Weekend Investing US stock strategy, though these are not recommendations. The NASDAQ 100 heat map showed Nvidia, Avgo, Netflix, and Cisco moving down, while Apple, Google, Microsoft, and Amazon remained flat.

Tweet Of The Day

Comparing equity indices with gold and silver reveals the benefits of an asset allocation strategy. While equity indices like the Nifty, mid-caps, and small caps were performing well from the 2020 Covid bottom until September 2024, gold and silver were relatively stagnant.

However, once equities began their 15-month consolidation phase, gold and silver began to perform strongly, providing support to investor portfolios. This highlights that a good asset allocation strategy can ensure a peaceful investing journey, allowing a portfolio to reach new all-time highs even in years when equities are flat.