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At the time of writing Nifty is 6.28% down having recovered a bit after 11 am (Mar 12th 2020). While it is not possible at this stage to call this as a “correction”, a “reaction”, or a “crash” (this would require hindsight bias), we are witnessing a rare event. Nifty has fallen more since Jan 1st 2020 than NSE Midcap and Smallcap Indices. This could be healthy for the market overall.
As on Mar 11th 2020, Nifty 50 has fallen -14% from 1st Jan 2020 (-19.8% as 1pm 12th March 2020). Since some define a 20% fall as a “crash” were pretty much there. Nifty Midcap 150 8% as on March 11th and Nifty Smallcap only 9.33%. This is shown as a normalized plot below.
The gap would probably have considerably closed today. Nonetheless, it is striking that large cap stocks have fallen more than mid or small stocks. Those closely watching the markets would probably say, “about time too”.
Ever since the midcap and small cap segments began to fall after budget 2018, it is well known that only a few Nifty and Sensex stocks held the large cap indices, so much so that Return difference of Nifty 50 vs Nifty 50 Equal-weight index was at an all-time high as on Dec 20th 2019.
That is NIfty 50 Equal Weight Index return was significantly lower than Nifty 50. The highest ever. Notice how much this situation has significantly corrected since 1st Jan 2020. Again this gap could have considerably closed when the markets close today.
Although the reasons that triggered this fall are unfortunate, this correction among different segments of the market was inevitable, dare I say necessary and a long time coming. From that point of view, this is indeed a healthy development.
Going forward it would be interesting to see how active large cap funds fare.
About the Author
M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin
Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice.He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
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