Finally, the floor gave away, and the 25,000 mark was lost on Nifty. The large caps fell first. Small caps resisted for some time, but then the rest of the market also followed suit. To some extent, one can say that some sort of a correction has started. Whether it will go deep, stay shallow, or spring back up very quickly is not yet known. The makeup of the fall was pretty even across sectors, as we will see. The extent of the fall was nothing very serious to that extent.

Market Overview

Where is the market headed? As I am showing on the screen, Nifty is down 1.17%. There were three gaps made since the beginning of the August crisis. We’ve covered, gone, and closed one of them today, and we are coming closer again to this 40-day moving average on the chart. There is potential that we will go down further, but let’s see. This breakout has been proven to be a false one. The market could not sustain it, although it did try twice on the previous two days, but today it has given away.

Nifty Next 50

Nifty Junior also cracked below the support, down 1.36%. The next two major data points are tonight’s jobs data from the U.S. markets, which have implications all over the world, and in less than two weeks, the FOMC interest rate meeting, which is also going to impact global markets in a big way. These are the two events to look for this month, and that is likely why markets are bracing themselves ahead of those two data points.

Nifty Mid and Small Cap

Mid-caps also fell initially. They did open at previous highs, but during the day, they collapsed back to the support at 21,675, down 1.37%. Small caps made a bearish engulfing candle, hitting a new all-time high before doing so. There was reluctance in small caps to come down versus large caps, but they eventually gave way and covered the gap created a day ago. Still, small caps are doing much better than the rest of the market, although many experts say that large caps are the way forward from here on and not small caps. However, small caps are currently much more resilient than large caps.

Nifty Bank Overview

Bank Nifty was the real one that had a big move down, dropping 1.74%. Bank Nifty’s worries don’t seem to be ending. Everyone is talking about poor deposits at banks and margins that are going to get squeezed because of that. So, there is a lot of worry in the banking sector. Although I was thinking, maybe rightly or possibly wrongly, that interest rate cuts would help the bond book of most banks, and that might cause upward pressure on the banks, there are other worries engulfing the bank index.

Advanced Declined Ratio Trends

Momentum trends show the advances were really poor. Yesterday, someone asked me to explain this chart more. This is a CNX 500 chart, which shows how 500 stocks moved today. On 6th September, 111 stocks moved up (advances) and 389 moved down (declines). This roughly tells you the mood or sentiment of the market. When markets are sentimentally weak, you’ll see more red; when they’re more bullish, you’ll see more green. On even days, like the last four days, you’ll see this being almost similar on both sides. Today, there was definitely a skew towards the reds, and hence the market was down.

FII’s had small selling yesterday of -688 crores, but there was good buying by DII. So overall, the FII plus DII number continues to remain positive. Except for one day, total institutional buying has been positive. But let’s see whether this one-day sale by FII is a flash in the pan or becomes a continuous trend.

Nifty Heatmap

Today’s heat map was all red; there was no place to hide. Reliance was down 1.89%, and the biggest bear today was State Bank of India. Whenever State Bank of India makes big moves, it usually starts a decent trend. State Bank falling 4.4% says a lot more than what the overall market is saying; that there is some sort of a down leg we are looking at. It is unusual for banks to fall this big and then suddenly come back up the next day. That usually doesn’t happen, but let’s see where we go.

ITC, NTPC, Reliance, Coal India, and Infosys—all big names—fell today, nearly 2% each. And you had SBI, which really stood out with a 4% drop. In terms of Nifty Next 50, there was also a lot of red. Many finance-related companies, like Power Finance and REC, also fell. IRFC fell. There is potential talk of no rate cuts in India, even if the U.S. cuts rates, and that potentially is getting priced in here. Companies like Canara Bank and PNB fell dramatically today. SBI Card was the only one that stood out with Marico, Zomato, some gains in Pidilite, and ICICI GI. Other than that, even companies like Motherson and Bosch were not spared along with SRF.

Overall, it was a selling day. It’s not very clear if India will follow the line of interest rate cuts. If they don’t, the market is going to get a bit disappointed.

Sectoral Overview

Sectoral trends show PSU banks were hit the most, led by SBI, with a 3.6% single-session drop. That’s a deep cut. Public sector enterprise stocks were down 2%, energy, private banks, and infrastructure were all down more than 1.5%. Commodities, autos, IT, and real estate were down 1% or more. Pharma and consumption sectors, which are sort of defensive stocks where money rushes during these falls, were the least hit. The entire day saw all sectors down. In the last week, barring FMCG at +0.2%, everything is down. So, the last week was a complete washout. While the month still looks good, let’s see where this trend takes us.

I also want to mention that there is unbelievable confidence in the market right now that every fall will result in an equivalent recovery very soon. But there will come a day when it won’t happen so fast. Markets remain at all-time highs not even 50% of the time; if you go back and see, it will only be maybe 30%. We’ve had so many continuous months of all-time highs that there could come a period where you may have a year or two of some sort of consolidation. While we can’t say when or how it will happen, you should be prepared for that in your mind. That’s the whole idea of this narrative.

Sectors of the Day

Nifty PSU Bank Index

PSU banks are really looking very scary on the chart. If the election day low gets taken out, it will point to a lot of weakness for this space. Indian Bank, Canara Bank, State Bank of India, Bank of Baroda, and PNB all lost big numbers there.

Stocks of the Day

Godfrey Phillips

Godfrey Phillips issued a two-to-one bonus. As I’ve shown you in previous videos, bonuses and splits are simply accounting juggleries, moving money from reserves to share applications. So nothing earth-shattering happens when you issue a bonus or a split, but markets love that. There may be other reasons why Godfrey Phillips is going up, but we won’t get into them now. We’ve been riding this in some strategies, and it’s up 12.3% even on a day like this. So that tells you the current strength in that particular stock. It was range-bound for almost six to seven years before it broke out, causing a rocket-like move in Godfrey Phillips.

Story of the Day: Shocking performance from CNX200

These are the top 20 weighted stocks of the CNX 200 index. CNX 200 is the largest 200 stocks, basically. Everyone knows that. This index has HDFC Bank as its highest weight at 7.4%, Reliance at 6.25%, ICICI at 5%, Infosys at 4%, TCS at 2.8%, and so on. If it was equal weight, then each of these 200 stocks would have half a percent weight. So the top 20 stocks also have 0.96% or more. Half a percent is much, much lower down the hierarchy. These top 10, 15, or 20 stocks—the top 20, so the 10% out of the 200—have 50% of the weight. So 10% of the stocks have 50% of the weight, and 90% of the stocks have 50% of the weight. That’s the way the CNX 200 index has been designed. That’s the basics I want you to be clear on.

Now, pay very close attention because it can get confusing. The top 20 weights, as I mentioned, is 50%. But if I were to see the top-performing stocks, the top 20 performing stocks of the last one year, their weight is only 8%. I hope you are getting what I am trying to say.

The top 20 weighted stocks are 50%, but if I see the top 20 performing stocks, they have only 8% of the weight. There is a huge skew. So what does it mean? These top 20 performing stocks have a weight of 8%, but the CNX 200’s best performing stocks—the stocks that actually make money—are not the highest weighted ones. They are not these big-name companies. They are the small companies that don’t have much weight, but when they move, they move in big numbers.

This creates a huge disparity because if you are investing in CNX 200 directly and you are getting into these top 20 weights, which most of your money will go into, you will not be investing in these top-performing stocks, which have very little weight. This is an eye-opener.

For instance, ITC is one of the top 20 performing stocks, and it has a good weight at 2.9%. The weight-to-performance relationship is a crucial part of this index strategy. You have to be very mindful of which stocks you are investing in because the big ones won’t always give you the best returns.

In conclusion, this skew is why many active managers are trying to break down these indices, creating more equal-weighted strategies and other alternatives that make more sense than just investing in the broad index.

So, if you’re interested in strategies that consider this disparity and are aligned with your investment goals, Mi Evergreen might be worth considering before the price change on 9th September.

Mi EverGreen’s Subscription Fee goes up on 10 Sep 2024

Effective 10 Sept 2024 , Mi EverGreen’s subscription fee will be increased for the first time since launch.

Old Pricing : Rs 2,499 (Quarterly) | Rs 7,499 (Annual)
New Pricing : Rs 4,999 (Quarterly) | Rs 14,999 (Annual)