Market Trends: Beyond Nifty50’s Lens

Everyone keeps looking at #Nifty50 for the trend.

Got to remember it’s a very concentrated Index.

38% is Financial Services

Reliance Industries and HDFC Bank are 24-25% of the Index.

There could be a breakout in #Nifty50 but no confirmation elsewhere.

There could be a Breakdown & Reversal in Nifty50 but none of the other Indices.

In many cases would give false indications.

Look for confirmations at the start of trends. Divergences after a good trending move.

A Single heavyweight or Sector move can change the structure of the Nifty chart

A new ATH on Nifty was made in late in June 2023, while other indices gave an early indication of the trend

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SO which are the other Indices to look for?

 

Nifty50 Equal Weight.

A good index to confirm if the Nifty trend is being followed by most Nifty names.

(Made all-time highs in May end. Nifty50 did in June end. Early Confirmation of Breakout)

 

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Nifty 500

A broader Index but still has a lot of weight to the top names.

Good for confirmations.

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BSE Allcap

Almost 1200 stocks. Not a lot of historical data but an interesting index.

https://nooreshtech.co.in/2023/06/nifty-500-bse-allcap-index-breakout-or-a-pause.html

(see how BSE Allcap in 2018-2020 this Index never crossed highs but Nifty kept doing it)

(Broke into new highs much before Nifty50 giving early indications.)

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Smallcap Indices

BSE Smallcap Index

The Kachra Index of India. No upper limit on the no of stocks. Bottom 15% of Allcap. Gives good indication of Euphoria/Pessimism.

 

 

 

Look for divergences for topping out sings.

Nifty Lower Tops Lower Bottoms and BSE Smallcap Higher Tops Higher Bottoms is an ugly divergence for Short Term Market Topping out in few weeks.

Watch :

Ep.8 When to get out of Small caps? | ft. Nooresh Merani

https://youtu.be/xedqj6l-4Rs?list=PLMzITSVsumryL65iFbX-jGCXIxh35rGvl

 

Nifty Smallcap 100

As it limits to top 100 gets over-concentrated in Bull Markets. Next cycle it lags. When it starts outperforming big time it’s an indication of finally the rally is getting narrow.

(For example has not made new all-time highs even till now. BSE Smallcap is 15% higher after crossing ATH.)

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To conclude, In assessing market trends, relying solely on the Nifty50 can be misleading due to its concentrated nature.

Instead, consider confirming signals from broader indices like Nifty 500, Nifty50 Equal Weight, BSE Allcap, and Smallcap indices for a comprehensive view of market movements.

Diverse index analysis helps validate Nifty50 trends