Moneycontrol Pro Panorama | Investing in a structurally weak market

For those investors who do not have the time to do the maths or research companies, index or passive investing is a boon. (Representative image)

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The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of. 

For stock market investors, 2023 is proving to be a difficult year. After touching an all-time high of 18,888 on December 1, 2022, the Nifty has corrected to 16,987 levels, a drop of 1,900 points, or nearly 10 percent. The slide has been slow and painful for a Nifty ETF investor, but when it comes to smaller stocks the drop is brutal.

A tweet by a market analyst Alok Jain (Weekend Investing) highlighted the pain. Of the 988 stocks with a market capitalisation of over Rs 1,000 crore, 58 stocks are down by 80 percent, 72 are down by 60 percent, 264 are down by 40 percent, 316 are down by 20 percent and 159 are down by 10 percent. The average stock is down 40 percent.

Sectoral damage is much more, with real estate stocks losing nearly 45 percent at the index level from their all-time high levels. Energy and metals indices have lost nearly one-third of their value while the oil and gas index has lost one-fifth of its value.

The numbers bring out the structural weakness of the market as well as the role of indices. The broad indices do not display the real strength of the market, but at the same time, it helps a passive investor stay with some of the strongest stocks in the market.

Mutual fund investors have realised the importance of investing in low-cost passively-managed index ETFs and are steadily increasing their exposure to these funds.

Also hidden in these numbers is the importance of momentum investing. Out of the 988 stocks, 119 stocks performed better than the index or fell less than 10 percent. Some stocks are trading close to their all-time high levels.

Staying with the winners and exiting the losers is an important investing strategy that has been the mantra of successful investors. Index investing does the same. Companies providing index management services regularly weed out the losing stocks and add strong stocks in the index.

For those investors who do not have the time to do the maths or research companies, index or passive investing is a boon. But for those with the appetite for direct stock investing, one stock our research team has cast its vote in favour of is Persistent Systems, a company which has shown consistent performance.

We continue with our coverage of the fallout of SVB, with Ajay Bagga
commenting on the US banking system and what happens when the central bank creates a more than decade-long easy money bubble and then tries to prick it in a short time. Sashi Sivramkrishna writes on how the Fed is using a blunt tool to tackle inflationary pressure.

Investing insights from our research team

Navneet Education: Should investors bet on this stock?

Defence engineering sector: Stocks take a pause, right time to hunt

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Technical Picks: DLF, Crude oil, United Spirits (McDowell), Power Grid Corporation of India and SRF (These are published every trading day before markets open and can be read on the app)

Shishir Asthana
Moneycontrol Pro