The last 2-3 months have been very surprising and interesting if one is looking at Nifty. In the end of June we had come out with a report mentioning how Nifty is forming a big ascending triangle and we should see a bounce back to 6200 levels.
Nifty after making a low at 5580-5600 did move up to 6090 but it was only because of a section of stocks.
Post that we have seen a huge decline in broader markets but Nifty is still at 5700 levels.
Over the last couple of weeks have been writing on how Nifty levels have become irrelevant for a trader or investor. A trader cannot go long on stocks if the Nifty looks positive ( how PSU Banks have fallen ) , Bank Nifty has started diverging from Nifty ( first time in last 5-7 years ) , How Broader market is at 4500-4800 levels of Nifty ( Midcaps have been damaged ) , In this article ‘We are in a Bear Market with a Bullish Sensex/Nifty’ have discussed how smallcap indices are at 3 year lows and Nifty/Sensex in uptrend.
In simpler words – Nifty is becoming less or totally irrelevant for giving a picture of Indian Markets or economy. The earlier simple question which was – Market kya Lagta hai ? is definitely irrelevant as stocks/indices are in different orbits. Index Management could never be more easier !
Nifty 50 should be given a new name Nifty 20 or Nifty 10.
Top 20 stocks weightage is 78.4%
Top 10 stocks weightage is 59.1%
3 stocks can now change the direction of Nifty in either direction and 20 stocks can be irrelevant. The last 20 stocks have a composure of only 11% .
So for this index BHEL , Jindal Steel, Tata Steel, Ranbaxy, DLF , Sesa Goa , Hindalco and such underperformers were to fall 50% also would only move index by a mere 50-70 points. That is the reason the recent post on how Infosys can give a head up to the Index.
My earlier posts in this topic had a Nifty calculator for every reader to decide an expected price for 50 stocks.
This was my previous post in August 2012 where we discussed the weightage topic in a little more detail.
in December 2011 this post on What is your target in Nifty helped us take a buy approach.
So here is the recent excel sheet on the
What to do with this excel sheet
-> Put your expected prices for the top 10/20 stocks and see where expected Nifty comes.
-> Put the most optimistic prices you expect and see where Nifty comes to.
-> Put the most pessimistic prices.
-> Take random drops by changing the percentage column.
P.S --- Generally as per Free Float method a stock rising more than the Nifty leads to a higher weightage and vice-versa. But given the above exercise is not a precise study we can skip it.
I tried playing with the sheet and just changing a 15-20 % rise in 3-4 heavy weights like Infosys, Reliance and ITC takes the Nifty to 6000 quickly.
At the same time taking a 15% drop in some heavy weights takes it down to 5300 pretty quickly.
The real pain comes when i have visualize a big drop as i generally have a bullish bias.
For example in this sheet below i have tried to be extremely bearish on everything but a less downward tick in some stocks i like technically – Infosys, TCS, HCL Tech , Bharti Airtel and some lesser drops in Maruti , Lupin etc. Just too bemore gut based did put some numbers quickly.
P.S – The above price points are not a direction view but time pass. In my bearish view could take it to 5100 levels 🙂 Lets see what you guys can come up with.
Have not tried putting an optimistic prices yet but will definitely do so in coming days.
Would like readers to please try playing with the above sheet and also if you can get to a number beyond 6300-6500 or 4800 do send it to me on firstname.lastname@example.org
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