Decide your large cap buying strategy through Nifty tracking

I have been asked by many people whether there is any rule to decide the right time to buy. Well, unfortunately all the rules that many people tout about are largely intuitive and may or may not work in a given circumstance. However, it is possible to come to some logical conclusions if you track the indices closely over a period of time. Let me try and suggest an approach in this post that has worked well for me in the past.

We will start with the Nifty today and use the following data to arrive at some possible conclusions as to whether it is a good buy at this stage. The data points are:-

  • Current level is 7441, 52 week low is 7241 and 52 week high is 9119.
  • YTD returns are -10%, 1 year is -16.5%, 6 months is -11%, 3 months is -9.7%.
  • 200 DMA is 8100, 150 DMA is 8034, 50 DMA is 7718 and 30 DMA is 7661.

What are the conclusions we can possibly draw from these? Here are some:-

  1. The trend of Nifty is downward for quite some time now and even today it is well below the 30 DMA.
  2. Returns have been negative for all periods over one year, indicating that the stocks making up the Nifty have, by and large, had a downward trend.
  3. Till Nifty crosses the 30 and 50 DMA we will not be able to say that it has really started consolidating on the way up.

What should be your actions for the large cap equity buying whether in stocks or MF. Here are a few pointers that you may be able to use:-

  • While buying large cap MF through SIP would not have been a bad idea in this market, you need to look beyond that and purchase at the right levels.
  • In the period we are talking about Nifty came down to 7500 a couple of times and found support there. Finally it breached that level in the recent down move and went all the way down to 7241. As such you can look at buying large cap MF in between levels of 7300 and 7600 of Nifty. Do not go beyond it as there will be enough chances to buy as this level in 2016.
  • Similar approach should be adopted for large cap stocks. However, there you can take Nifty as a starting point, after that you will have to do a similar analysis of price movement through DMA for the particular stock in question.

Does this guarantee that your returns will be good? Unfortunately, no but what it does guarantee is this – because you are buying in a sensible way and not doing SIP mindlessly, your portfolio will be one of the quickest ones to recover when things start getting better. What is happening in the markets is not in your control but the price at which you want to buy equity is. Do not give it up and watch things in a helpless manner – that is simply not good enough strategy for your investments.

I will shortly do a similar post for mid cap and small cap space.

Advertisements

14 thoughts on “Decide your large cap buying strategy through Nifty tracking

  1. Hi Sir,Kindly let me know whether this stratgey of mine is good. Instead of tracking DMA levels or market levels Iam tracking the NAV of the fund which iam investing thorugh SIP and investing additionally whenever my average NAV price is lesser than Current NAV.
    This strategy is making me average my units in this fund without seeing the daily market drama.Iam least concerned about the market because iam not investing in stocks.Fund Manager will see that.My strategy is to average my units thereby decreasing the average NAV price which i bought in the specific fund which gives me more return over the long term.

    Like

  2. Hi Sir,Kindly let me know whether this stratgey of mine is good. Instead of tracking DMA levels or market levels Iam tracking the NAV of the fund which iam investing thorugh SIP and investing additionally whenever my average NAV price is lesser than Current NAV past 1 year.
    This strategy is making me average my units in this fund without seeing the daily market drama.Iam least concerned about the market because iam not investing in stocks.My strategy is to average my units thereby decreasing the average NAV price which i bought in the specific fund which gives me more return over the long term.

    Like

      • To have the info regarding the NAV of various funds I have started SIP. Because the NAV of different funds vary differently.They don’t increase or decrease same corresponding to DMA levels.So if i have various SIP funds & the alert mechanism of change of NAV, I can select the fund which has dropped more in NAV and invest.No need to time the market or DMA.

        Like

      • Sir, I am sorry …I am not conveying that we should not see DMA while investing.Because as per my understanding of your post DMA levels show us WHEN to invest in this fluctuating market, But as per my analysis NAV of the fund show us WHERE to Invest in the various funds we have and which has dropped more or where can the units be averaged more.I mean DMA for WHEN to invest leading to NAV for WHERE to invest.
        Am i Right Sir?

        Like

  3. Thank u very much for opening my eyes for sip euphoria again thank you very much from bottom of my heart. Please please please keep blogging.

    Like

  4. Given the that the euphoria in the market started recently ( post BJP coming to power) is a short time frame index like 200 day DMA or for that matter 52 week high/low a reliable metric to take this call ?

    Like

  5. Sir, Not lower NAV. I am tracking Average NAV Vs Current NAV. From among different funds i have, Iam investing in the funds where the Average NAV minus Current NAV is a higher positive figure in terms of Percentage decrease.
    Eg : Fund A : Avg NAV – Current NAV = 98-92 = 7
    Fund B : Avg NAV – Current NAV = 41-40 = 1
    Iam investing in Fund A

    Like

    • Even that may not be ideal. You need to look at the % change and not just the absolute value comparison. For example a change of 3 in 40 current price is actually better than a change of 5 in 100 current price. Hope you get the point.

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s