Most of you consider Nifty 50 as a general Index to look at Indian Stock Market. Often it’s common for Media’s and self-proclaimed pundits to judge the overall trend of Indian Stock Market just by looking at Nifty 50 Index. However, to take a well-informed trading decision it’s not a good Idea to just rely on Nifty 50! Here’s why, Take a look at this chart
Nifty 50 Making Higher Highs
Since the Beginning to 2018, Nifty 50 is making higher highs. From an Observer standpoint, this will give a rosy picture about the performance of Indian Stock Market. After looking at this chart, some of you may think that Market is in upward direction and everything is going well. Even one my fellow trader who’s quite experienced, said that “stock market was doing fine”, referring to the price action of Nifty 50.
After all, If Top 50 companies are doing well then everything is going good right? Don’t jump to conclusions! Wait, until you see the other two charts!
Nifty Midcap 100 Index
Nifty Midcap 100, The Index composed of Top 100 Midcap companies in NSE, lost almost 25% since the beginning of 2018. You might think that, it’s not necessary to consider Midcap stocks for assessing the general market direction. Well, remember this fact – Midcap stocks are the backbone of a growing economy. Without a recovery in Midcaps you can’t expect a broader recovery in Stock prices.
Of course, it’s not fair to take a negative perspective only by looking at Midcap Index. But unfortunately, it’s not just the Midcaps that’re performing poorly…
Nifty Smallcap 100 Index
Smallcap companies also experienced big turmoil, Take a look at Nifty Smallcap 100 Index. The Index lost around 40% since the beginning of 2018 and so far only a few small cap companies are doing better. It’s easy to neglect by saying Smallcaps are highly volatile and not a good measure of overall Stock Market activity, but it’s exactly the other way around!
Performance of Smallcap stocks gives a better picture of the overall Stock market activity and Economic growth, because they’re the ones that benefit most from the Economic boom and get highly affected in the Economic downturns. So without considering Smallcaps, we can’t get a clear picture of the stock market trend.
From these scenarios, you might have understood why it’s important to keep an eye on both Midcap and Smallcap stocks. Also you can see how easy it’s to misjudge the market trend, just by looking at Nifty 50.
So is there another way to gauge the overall Market trend? Without missing the relevancy of Midcap and Smallcap stocks? Yep! There’s an alternative way…
Nifty 500 – A Better Alternative to track the Indian Stock Market
While looking at Nifty 50 might give us a rosy picture, at the same time looking at Nifty Midcap and Smallcap Index will give us a bleak view of the overall Market activity. To get a better gauge and track the overall market trend, Nifty 500 will be a more realistic Index.
As you can see in the Nifty 500 chart, since the beginning of 2018, Indian Stock Market never made any significant moves. The overall Stock Market is almost flat, till to date.
Why Nifty 500 is a Better way of looking at Indian Stock Market?
Nifty 500 is a better way to track the sentiment and trend of Indian Stock Market, since it takes all the major Largecap, Midcap and Smallcap stocks as composure. Hence it provides a more accurate and realistic picture of the overall Stock Market. Check out the Index Breakdown of Nifty 500 here.
In my trading analysis, I always justify the Market Trend by looking at Nifty 500. Only Based on that I look for High Probability Price Action setups. Doing so gives a better edge in my trading. To know more about my trading strategy, browse through my website.
So from here onwards, to find the Market Sentiment and Overall Market Trend – Look at Nifty 500, as a better alternative.
