What’s happening in the stock market?

Global markets are highly volatile since last 6 months , even the best stock pundits are not able to get a hold of the entry & exit levels for the market. Fueled by liquidity across the globe markets were making record highs since 18 months. So what’s changed in these last 6 months .

The Problem

Well the old adage is true for markets too , what goes up must come down , and that’s always healthy for markets in long term. The problem is the volatility in smaller time frames like weekly & daily , this is where most of the speculators and traders are losing money. Most of the liquidity is being pulled by top bankers and investment houses who extrapolated the high inflation numbers of the US economy 6 months ago. ( Recent US inflation is highest in its history around 7% ). So a staggered selling across months gave them good exit and created huge volatility for Indian markets.

Also read : How inflation impacts your investments.

What are Global investors doing?

We are a developing market and heavily dependent on FII funding / investing. But in the last 6 months FII have ditched Indian markets & have booked handsome profits specially in LARGE CAP stocks. The figure below from www.moneycontrol.com clearly shows the pessimism from the FII’s specially in cash market where most liquidity is demanded by large cap stocks.

So What’s next , should you opt out of direct investments in Equity market ?

Yes & No both. Lets understand .

If your view is bias towards Nifty then YES , you should opt out of the direct investment and stick to mutual funds , the reason is simple , Mutual funds are better Money & Risk managers . India’s index NIFTY 50 has over 50 stocks yet , 50% of the entire market cap of NIFTY is governed by top 7 stocks and within that HDFC group stocks alone command 15% of the weightage.

Passive Investment is the Solution

So technically speaking this is a skewed Index which is heavily focused on certain sectors and concentrated on some companies (group). So if you wish to invest in the NIFTY 50 stocks , its better you buy a mutual fund having a balanced approach and certainly one which is not an INDEX FUND . Yes , please do not buy index funds as they are tracking NIFTY 50 and will be heavily invested in these top 7 stocks.

Go active or Go Home !

But if you are an active informed trader , then there are plenty of opportunities for you to explore and invest , specially taking the TOP DOWN investment approach . Certain sectors such as banking , construction and cements are highly underperforming the broader market. India is a country of 1.5 Bn consumers , so these critical sectors will pick up with the actual growth in broader population base.

At QUEST, we keep on updating our followers on the investment ideas , sectoral analysis and our model portfolios. In case you wish to have a custom model portfolio built as per your needs , do not hesitate to connect with us on info.questft@gmail.com

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