Nifty 50 is the benchmark of how the Indian economy performs. It has top 50 listed companies on the National Stock Exchange (NSE) since 1996. For the past decade, Nifty 50 has shown the signs of bull run consistently.
In the long run, Nifty 50 has given 3.4X returns in the last decade. Your 1 Lacs invested only in Nifty 50 would have equated to 3.4 lacs in 10 years at CAGR of 13%! But the question is when does the bull run stop?
Well, the short answer is – It Depends. It depends on the nature of your investing style. Whether you are a long term investor or a short-term trader or even a day trader for that matter. Also, whether you invest using macro or micro triggers.
Short Term Nifty 50 view
A lot of retail investors make sure that the companies are fundamentally strong and are growing in numbers. Little do the investors think of the basic question – who buys and who sells stocks?
Imagine you have a popular toy that many kids want, but there are only a few available in the store. This situation creates a high demand because many kids want the toy, but the supply is limited. As a result, parents might be willing to pay more money to buy the toy for their children.
Pricing of stocks depends on the simple economic concept of demand and supply. They are limited, and anything which is limited or scarce, will have value. If retailers or big FIIS want to buy a particular stock in a larger quantity, prices of the stocks surge. If they want to dump, the price fall down.
Stocks price usually do not affect the company in general, it is the retailers that buy and sell and these are controlled by SEBI in India. Their decisions are triggered by news, decisions by the government or movement of large investors into another company/industry al-together. These are the basic reasons by which you cannot predict the market in the short term.
Other ways to predict a market is using the concept of Japanese Candle Sticks. This is heavily used by day-traders. While it is blessing for some, it is highly risky for a lot.
Nifty 50 Short Term Triggers
Since we explained the unpredictable short term view, there are two sure short triggers that will affect the Nifty 50 in general. First is the ‘General Elections‘ and second is the ‘Interest Rates’ in the US!‘
India is about to witness general elections in 2024 in the coming months. By looking at the past trends, markets swing both ways after the result. When the BJP lost power in 2004, it created uncertainty in the market. Investors weren’t sure how the new government would manage the economy, so they became cautious. This caution led to a dip in the market because people were hesitant to buy stocks.
When the Congress party retained power in 2009, it provided stability and continuity in economic policies. Investors felt more confident about the future, leading to increased buying activity in the stock market. This surge happened because people were more willing to invest.
In 2014, Before Modi became Prime Minister, there was optimism about his pro-business and economic reform agenda. Investors believed his leadership would positively impact the economy, so they started buying stocks in anticipation of future growth. This pre-election rally occurred because people were excited about the potential changes under Modi’s leadership.
Second is the interest rate cuts. In the 21st century, smaller economies are dependent on the larger economies. Such as India on the US. From a past historic data, whenever there are interest rate cuts, people invest more and hence the stocks surge. Recently the interest rate got really high in the US to counter the inflation due to Covid-19. So it is expected that interest rates would be cut in the US, since there elections in the US as well soon.
Long Term View
The digital revolution has not only made founders billionaires in India but has also led to money creation for retail investors. The rise of FinTech giants like Zerodha, Groww, INDMoney and Upstox have made hassle free demat accounts.
In a report by Mint, in 2016 itself 2.4 million demat accounts were opened in India. But what if we tell you that only in the month of December 2023, 4.2 million accounts were opened in India. The average accounts opened per month in the 2023 was 2.1 million as per a report by Motilal Oswal.
If the game of investment depends on the basic concept of Demand and Supply, then in the long run, prices would only surge. The demand for stocks has been massive in the recent years and is only about to explode! Although there will be short term slowdowns but the bigger picture looks promising!
Nice one