In year 2017, NIFTY had made tremendous gains throughout the year. In 12 calendar months, the index gain was about 28%.
Did investors actually gain that much?
I asked many of them. I did not find a single one. None got returns equal to NIFTY through their own efforts or through Mutual Funds or Portfolio Management Services.
Why do we cheer NIFTY/Sensex gains?
It is just a mindless exercise.
I answered a question on Quora in January 2018.
The answer makes sense today as well. So I am sharing it here.
What happens as points in NIFTY or SENSEX increase and how do they affect my stocks ? :
NIFTY is the index based on weighted price of 50 representative stocks on NSE.
SENSEX is the index bssed on weighted price of 30 representative stocks on BSE.
Here is a look at what happened on January 05, 2018:
NIFTY had gone up by 54.05 points during the day.
Out of the 50 stocks in NIFTY index, 31 advanced and 19 declined.
Here are the top 5 gainers/losers for the day:
Based on this information it can be easily stated that your stocks may go up or down unmindful of what NIFTY is doing.
NIFTY movement is in essence controlled by about 10 Top weighted stocks. The reasons is there weightage in the index.
As of December 29, 2017, the following were top 10 constituents of NIFTY:
These 10 stocks constitute 53.12% of NIFTY value.
All other 40 stocks form 46.88% of NIFTY value.
Mostly it is the contribution of these top 10 which makes the Index move up or down.
Your stocks may not be part of NIFTY.
So there move is totally independent.
NIFTY moves based on the stock price movement, stock prices do not move based on NIFTY.
NIFTY is an indicator of the market.
But we use to to judge the trend of the market.
It is like another anomaly seen in our day to day life.
If we have fever, body temperature will be more than 98.4 degree F.
Temperature is up because of the fever.
But we often conclude that if body temperature is above 98.4 F, we have fever.
Temperature ( it is an indicator only, not the disease) has become to fever what NIFTY has become to markets.
Still it serves a general purpose as an indicator of markets health.
But your portfolio health is independent of NIFTY.
Have a look here:
The lat column shows 52 week gains of various stocks.
NIFTY gained 28.92 % in the 52 week period.
7 stocks lost value ranging from 3.38% to 39.50%, the biggest loser being LUPIN.
In all there were 28 stocks whose gains were less than NIFTY gain.
So anybody invested in these 28 stocks would have gained less than NIFTY and if the portfolio consisted of LUPIN, M&M, Tata Motors , Coal India types of stocks, would be looking at a loss.
NIFTY and SENSEX are general indicators of the market direction.
Your own stock portfolio may be part of this trend or different from it.
Hence, one should not needlessly rejoice on NIFTY scaling new heights if your own portfolio is a laggard.
I trust this answers the question.
Thanks Prasad Joshi for the RTA.
Thanks for reading.
Link to the answer:
Enjoy the weekend.