After more than a year, the benchmark index Nifty hit a fresh all-time high of 18614 recently, marginally beating the previous all-time high of 18604 that we saw on October 19, 2021. While the benchmark indices are trading at record highs, this has been a roller coaster ride on the back of news flow. If you were to ask this question at the start of this year when the Russia-Ukraine war news broke out, would we see a fresh all-time high this year? The answer from most of the market participants would have been an emphatic no.
After the markets started to factor in the war and moved away from its fear, it knocked down inflation worries. Inflation, rising interest rates, and the impending recession were all heavily discussed. In fact, the US did see a technical recession when it saw a second consecutive quarter of declining growth in its real GDP at the end of the June quarter. Despite all of it—the Russia-Ukraine war, inflation, rising interest rates, and talks of recession—Indian markets continued to outperform and benchmark indices like the Nifty 50, Nifty Bank, and Sensex managed to hit all-time highs.
The question is, though, despite all the euphoria around Nifty and Sensex hitting record highs, has your portfolio actually performed? Nifty has risen about 7% this calendar year, and the banking sector has been one of the biggest contributors to it. Nifty Bank alone rose more than 20% in 2022, with PSU Bank posting an even more staggering 65% gain this year. The other sectors, though, haven’t performed as well. While Nifty midcap 150 rose just about 5%, Nifty small cap 400 rose just about 4%. As the Pareto principle (also known as the 80/20 rule) states that roughly 80% of outcomes come from 20% of causes, it is applicable here also. The bulk of the rise has been driven by a select few stocks.
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The current bull market seems to be one of the most hated bull markets as participation is not broader. More than half the stocks in each of the broader indices like the Nifty 500, Nifty midcap 150, Nifty smallcap 250, and Nifty microcap 250 have been net losers for the year. Here’s a snapshot of how the stocks in each of these indices have fared.
As is evident from the above chart, while the benchmark indices have managed to record all-time highs, participation seems to be missing in the broader markets. In fact, that brings me to reminding my readers about index funds. Stock picking for retail investors is not easy, as it requires a lot of research and the patience and conviction to hold on to those research ideas. So, if you are a retail investor starting out and looking to invest passively in the stock market, index funds should be the way to go.
(By Ashish Gupta, VolatilityTrader and Derivatives Expert)
Disclaimer: This is the author’s personal opinion. Readers are advised to consult their financial planner before making any investment.