After the big fall yesterday, the markets were stagnant today, which I would say is the best that we could hope for. Additionally, while recording, a news flash just came in that the quarterly GDP numbers are out, and they are a bit lower than I expected. In the second part of the video, we will discuss how Nifty50 has temporarily become 51 stocks, and for those who are not yet following this story, it will be interesting. We’ll dive into the mechanics of how the index is managed when going from 50 stocks to 51.

Where is the market headed?

Market Overview

Looking at the Nifty chart, there was a 0.39% gain today, a virtually meaningless gain after the recent drubbing in the last two sessions. However, this is also the same zone from where the market has bounced multiple times in the past, so one would hope the market can find a bottom again in this range. If it doesn’t, we could be heading much lower. Analyzing the market landscape, we saw a top at the end of September, followed by a fall for a month and a half. There was a brief bounce, but it failed, and now we are still at the same level as we were in mid-December. Essentially, for the last two months, from the second week of November, we haven’t fallen from that level. In cases of steep falls, such prolonged consolidation would not usually occur, but there is no concrete rule. The levels of 23,250 and 23,500 remain critical. If the market manages to navigate this bottom range, it would be positive. If we open lower tomorrow but start to recover, that would be a good sign. However, we need to break above certain levels to confirm an uptrend. At the moment, it’s more important to consolidate in a narrow range rather than fall further. Overall, 0.39% up today is a modest result.

Nifty Next 50

Looking at other indices, Nifty Junior was flat, unable to even make a 0.3-0.4% gain, though it did attempt to rise. This is now at the same bottom level as mid-November, so any sharp fall from here could seriously damage Nifty Junior stocks.

Nifty Mid and Small Cap

The Mid Caps gained 0.87%, showing a good recovery and are almost back to pre-rally levels, so they are still doing well. Small Caps were up 1.4%, indicating that they don’t want to fall quickly. On the other hand, Large Caps are at a crucial juncture, and a drop below 49,500 could open up further downside, potentially by 4,000-5,000 points.

Nifty Bank Overview

The Nifty Bank index rose 0.56%, but it is teetering on the edge—any significant move below 49,500 could trigger a larger decline.

Advanced Declined Ratio Trends

In terms of momentum, today’s gain was positive, but it could also be seen as a “dead cat bounce.” The advance-to-decline ratio was 378 advances to 118 declines, signaling that the overall market was in favor of the advances. However, in the context of the last few days, today’s rise didn’t indicate a true market rebound.

Nifty Heatmap

In terms of sector performance, Reliance was a key contributor to the market, along with ONGC, SBI Life, HDFC Life, Hindalco, Adani Enterprises, and Bel. IT stocks, which were under pressure yesterday, fell again today. TCS, HCL Tech, Infosys, Tech Mahindra all posted declines. On the upside, ICICI Bank gained 1.2%, Tata Motors, Titan, and Nestle rose more than 1%, while ITC remained flat post its demerger. We’ll talk more about this in the second part of the video. In the Nifty Next 50 space, ICICI General Insurance surged by 3.9%, indicating strength in the insurance sector. Public sector banks like Bank of Baroda and PNB bounced back after a tough session yesterday, while stocks like Cipla (+4%), Zomato (-4.6%), Dmart (-2.6%), and Naukri (-4.28%) saw notable moves. Other stocks like Varun Beverages, Bosch, Union Bank, and Havels also lost ground.

Sectoral Overview

Real estate stocks performed relatively well, with ONGC leading the way up 1.3%. Metals were up 1.2%, commodities gained 1.1%, and infrastructure stocks were up 0.8%. These sectors tend to lead when high-beta stocks are on the rise. Real estate was up 0.8%, while pharma was up 0.7%. Autos, consumption, and IT stocks underperformed, along with FMCG, which took a back seat. It seems that aggressive stocks were leading today, while the defensive sectors lagged, which could be a positive sign.

Over the past week, most sectors have seen little movement. Real estate and PSU banks have lost some ground, while autos gained a bit. More or less, most sectors have been flat, either up or down by about half a percent. The last few months have disrupted the performances of several sectors, with private banks, FMCG, and Nifty barely gaining over the past 12 months.

The Nifty is up only 10.2% in the last 12 months, Bank Nifty up just 5.8%, and energy stocks up only 3.3%. This indicates a consolidation phase after the big rally from November 2023 to September 2024. This period of consolidation, lasting three to four months (and possibly longer), is forming the base for the next move up. If you’re in the market for the long term, this is a time to consider gradual accumulation. When the market starts moving up, people often freeze, like a deer in the headlights, and fail to allocate effectively. Even if the market is falling, a self-correcting strategy will help you maintain your allocation and let your strategy take care of it when the market turns upward.

Sectors of the Day

Nifty Energy Index

Energy stocks, for example, gained 1.25%, though the chart didn’t show a major positive outcome. Still, they performed better than others today. ONGC, Adani Green, Adani Power, and Reliance all did well.

Lowest Momentum Stock

Vodafone Idea

Moving on to the portfolio momentum score, which you can find in the description or through the QR code, Vodafone Idea currently has the lowest momentum score. Momentum strategies would have long moved away from this stock, protecting you from its decline. Vodafone Idea has fallen from nearly 20 rupees to 7 rupees this year, while midcaps have gained 80% since January 2022, and this stock is down 48%. This highlights how momentum strategies help you avoid stocks with poor relative performance.

Story of the Day : Nifty50 has 51 stocks, which sounds unusual but is happening.

The story is that ITC is going through a demerger, and the hotel division (ITC Hotels) is being separated into a new entity. The record date was 6th January, meaning that anyone holding ITC stock on that date would get ITC Hotels shares on a 1:10 basis. There was a special pre-open trading session held on 6th January for price discovery. ITC opened 26-27 rupees lower than expected, though analysts had anticipated a 20-rupee drop. This adjustment reflects the separation of ITC Hotels. The new equilibrium price of ITC without the hotel division was established, and the impact on ITC shareholders will be clear once ITC Hotels shares are listed.

Nifty normally has 50 stocks, but due to the ITC demerger, the index temporarily includes ITC Hotels as a dummy stock. This dummy stock will be included in the index calculation until ITC Hotels is officially listed. The weightage of ITC will remain the same for now, combining ITC Limited and ITC Hotels. Once ITC Hotels is listed, the live market cap will be used to reset its weight in the index, and in three days, it will be removed from the Nifty50 index. There are certain technicalities regarding this, such as a delay in removal if a circuit breaker is hit. Additionally, MSCI, which tracks ITC in its global standard index, will handle the demerger similarly, but ITC Hotels will likely be included in the MSCI Small Cap Index. As a result, it won’t be removed from the MSCI index. The FNO segment also has qualification criteria, and unless ITC Hotels meets these criteria, it may not be included in the FNO market immediately.

Finally, the impact of index selling post-demerger is noteworthy. Passive funds and ETFs that track the Nifty will have to sell ITC Hotels once it’s removed from the index. This forced liquidation will create significant selling pressure on ITC Hotels. For value investors, this could be an opportunity, but for momentum investors, it’s not a favorable scenario. It’s a unique situation where a forced sale could lead to abnormal pricing. So, this is an interesting event in the market, especially for those watching the technical aspects of demergers and their effects on indices.

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