Are the Giants Waking Up?

Market Update - Monday, 22 Dec

A Santa rally appears to have arrived earlier than expected, with a strong run seen in the markets both in India and globally. There is a growing realization among market participants that a lower interest rate regime is now a worldwide reality. Additionally, there are strong rumors regarding negotiations for an Indo-US tariff deal.

An analysis of gold over the last fifty years shows the metal has moved from 30 dollars to 4400 dollars. Technical indicators like the monthly Relative Strength Index (RSI) suggest that gold is currently in an overbought zone. While being overbought does not mean prices will immediately fall, as assets can remain in this state for long periods, gold has never been as overbought in its history as it is right now.

• The Indian markets performed very well, with the Nifty rising 0.79 percent to reach 26172. This level is less than 100 points away from its highest close ever. In just three sessions, the Nifty has shaken off previous market weakness.

• The Nifty Junior has also broken above its pivot high, moving away from a pattern of lower highs and looking reasonably stable.

• Mid caps gained 0.83 percent and small caps rose 0.96 percent, though small caps still have more ground to recover.

• Bank Nifty also climbed 0.4 percent. On this rare day, all market segments performed well, which also pushed gold to a new all-time high in rupee terms.

• Gold is now priced at 1 crore 34 lakhs 94,000 per kilogram. While this sounds like a massive increase from the 52 lakh price seen two years ago, the long-term compound annual growth rate is roughly 12 to 15 percent.

• Silver also surged 2.89 percent to reach 210,961 per kilogram. These sudden jumps often shock the system, leading people to believe prices must come down.

Other Market Triggers

• Notable gains were seen in IT stocks, Reliance, TCS, Bharti Airtel, Bajaj Auto, and Tata Motors. While ICICI Bank and Bharat Electronics did well, SBI saw a small loss.

• Within the Nifty Next 50, there were significant gains in the commodity space with Hindustan Zinc and Vedanta, as well as in consumer goods like Varun Beverages and United Spirits.

• Finance stocks like Shriram Finance and IRFC performed well, alongside defense stocks such as HAL and Solar Industries.

• In contrast, R Power lost eight and a half percent as Reliance Infra faced a trading suspension.

U.S. Market Update

• In global markets, the U.S. indices performed well in their previous session. The Nasdaq rose 1.3 percent, the S&P 500 gained 0.88 percent, the Russell 2000 increased by 0.8 percent, and the Dow Jones went up 0.4 percent.

• These moves were powered by the AI sector, including stocks like Oracle, which rose 6 percent after being previously beaten down.

• Other contributors included AMD, Palantir, Nvidia, and Broadcom, with gains ranging from 3 percent to 6 percent. While these stocks may be part of specific investment strategies, their mention is for informational purposes rather than a recommendation.

What to watch next ?

• It appears that the market bottom for the month has already been established. This follows a common cyclical pattern where the first few weeks of December are often dull, followed by a pick-up as the year-end approaches.

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What To Read This Week ?

A Comparative Study of Nifty Top 10 Equal Weight vs. Nifty 500

The 20-Year Dominance

Historical data over the last two decades reveals a compelling story. The Nifty Top 10 Equal Weight (EW) Total Returns Index has significantly outperformed the broader Nifty 500 Index.

While the broader market captures the "average" sentiment, the top 10 giants (weighted equally) have historically driven superior long-term wealth creation.

Breaking Down the "Alpha" Slump

To understand the current opportunity, we look at the 2-year Rolling Alpha (the yellow line in the study).

• The Range: This alpha usually fluctuates between -10% and +30%.

• The Recent Past: For the last 1.5 to 2 years, this line has been hovering in negative territory.

• The Interpretation: The "Top 10" heavyweights were actually underperforming the broader market, making large-cap leaders look like laggards compared to the frenzy in mid and small-cap segments.

The Valuation Gap: Why "Big" is Becoming "Beautiful"

As the market expands with new listings and rapid growth in the Nifty 500, the original Top 10 stocks have seen their relative market weight reduced. This has created a unique valuation scenario:

1. Relative Attractiveness: While the broader market surged, these top 10 stocks stayed relatively stagnant.

2. The "Cheap" Factor: Compared to the high-flying mid-caps and new-age listings, these industry leaders are now looking relatively "cheap" and undervalued.

The Signal of a Trend Reversal

We are currently witnessing what looks like a Trend Turn. The charts suggest that the Top 10 Equal Weight Index is starting to show outperformance again. Historically, when this rolling return begins to rally upward, it signals a shift in leadership. The "giants" are beginning to find their feet, which often precedes a major market move.

The "Relay Rally" Mechanics

The market often moves in a predictable "Relay Race." If this signal holds true, we might see the following sequence:

• Phase 1: The largest, most stable leaders start moving.

• Phase 2: The rest of the Large-cap universe follows.

• Phase 3: Momentum shifts to Mid-caps and eventually Small-caps.

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