Make the Trend Your Friend!
As of now, the bulls are taking a breather after logging a fresh all-time high of 17,436.50 on the Nifty. During this phase of a breather, volatility has spiked up as there has been a tug of war between the bulls and bears. However, the bears are not able to get any sort of advantage and testimony of this lies in the formation of lower shadows, which clearly indicates that the template of ‘buy on dips’ is still in place. The lower shadow indicates that all the dips are being bought on D-Street. The Nifty is up by nearly 0.78 per cent in the last five trading sessions. During the same period, an exuberant broader market outperformed front-liners with Nifty Mid-Cap index rising nearly 1.46 per cent.
In the same period, the Small-Cap index has surged 2.72 per cent and logged a fresh all-time high. This is what we had advocated in our previous editorial: the time is ripe to shift your focus to the Nifty Small-Cap index which has delivered good returns in a short span of time. One of the sectors which we had highlighted earlier was Nifty Energy. Our anticipation was that it was on its way to make a fresh all-time high based on technical factors. And on expected lines it logged a fresh all-time high of 21,242.90, being up by 4.23 per cent on MTD basis. All these glorious moves in the broader markets as well in selected sectors have been seen despite selling by FIIs.
The FIIs have been net sellers for the third consecutive day on Wednesday. On the other hand, the activity from DIIs has been tepid as well. On Wednesday there were net buyers with a meagre amount of Rs 0.60 crore and on Tuesday there were net sellers to the tune of Rs 136.57 crore. Having said that, we have seen good inflow of nearly Rs 6,900 crore from DIIs in the equity market in August and with that it was six consecutive months wherein we have seen net inflow from the DIIs in the equity market.
An important statistic which should bring cheer to the mutual fund industry is that the systematic investment plans’ registrations are at fresh record highs as a scintillating rally in Indian equities during August has attracted new retail investors. According to the monthly data released by Association of Mutual Funds in India (AMFI), there were about 24.92 lakh new SIPs registered during August – the highest-ever in a month – taking the total number of SIP accounts to a high of 4.32 crore. Furthermore, SIP contribution in mutual funds in August was at an all-time high of Rs 9,923.15 crore.
Given such amazing figures emanating from retail investors, the question that comes to the fore is whether we are at the fag-end of the rally? Because, historically, such figures always signal the last lap of a rally and generally the markets top out. We would begin by saying that the first and foremost thing we should do is to shed some preconceived notions. This has been one of the major hurdles why many investors don’t make money consistently. Whenever the market rallies and gets into a bull phase, we start to look out for a top and vice-versa when it begins to fall.
We don’t follow a popular expression which most successful traders believe in: the trend is your friend, don’t fight momentum. If one would have followed the abovementioned expression, certainly he or she would have made money hand-over-fist. For the coming week, we expect the markets to undergo healthy consolidation amid stockspecific action while the sectoral rotation would continue. Nifty FMCG is expected to do well in the coming days as it has been seen moving higher after four days of consolidation. An important level to watch out for the Nifty is 16,760. As long as the index is above this level, the ‘buy on dips’ template should be the right strategy.
