Is Nifty Actually Growing?

Market Update - Friday, 06 Feb

The market displayed a sense of indecision today, largely influenced by negative cues from overseas. The NASDAQ has been falling, and tech stocks are tripping over recent news suggesting that AI agents could replace a significant portion of software development efforts within the next six to twelve months.

In the precious metals complex, volatility remains extreme. Silver touched $88 yesterday, dropped to $64 this morning, and recovered to $75 during this recording. This level of fluctuation makes it nearly impossible to conduct steady business or trades.

Reflecting on market psychology, a recent tweet from Mr. Rajiv Mehta compared casino gambling to day trading. Statistics suggest that while 13 out of 100 gamblers leave a casino as winners, only 1 out of 100 day traders reliably beats the market. SEBI statistics support this reality. Despite this, many professionals have left stable jobs for options and day trading, often accumulating significant debt for themselves and their families.

The markets remained very flat today, with the Nifty up only 0.2% to close at 25,693. A positive sign is that the market did not crash to close the gap from four days ago, maintaining its current range.

• Nifty Junior was flat at 0.13%, mid-caps stayed at 0.02%, and small caps ended down 0.34% after being pulled back up from lower levels.

• While there is a positive undercurrent, it lacks strength.

• Banking was flat at 0.09% up.

• Gold rose 2.29% to close at 15,033, while Silver rose 5% to 2,28,000, though it remains significantly down from recent highs.

Other Market Triggers

• The heatmap showed a mixed bag. FMCG performed well, with ITC gaining 5% and Hindustan Unilever also rising.

• Other gainers in the Nifty included Kotak Bank, Bajaj Finance, and Bharti Airtel. Conversely, HDFC Life, TCS, Infosys, HDFC Bank, State Bank, and Asian Paints were among the losers.

• In the Nifty Next 50, LIC moved up rapidly, joined by Vedanta, GAIL, HAL, BPCL, and Pidlite. Solar Industries also performed well.

• Metal stocks recovered from earlier losses to finish mixed, while CG Power, Bosch, and ABB are holding steady.

• The mover of the day was Hitachi Energy, which surged 14% following Q3 profits of 90%, continuing a long-term power move.

U.S. Market Updates

• In the U.S., the previous session saw heavy selling in stocks like Qualcomm, Eli Lilly, ServiceNow, Oracle, and Palantir, which fell between 6% and 9%.

• The NASDAQ dropped approximately 1.5% and the Russell 1.7%.

• Major names like Microsoft, Amazon, Google, AMD, Nvidia, Walmart, and Tesla also faced selling pressure despite some posting fantastic results.

• Some of these stocks could be part of the Weekend Investing U.S. stock strategy, though these are not recommendations.

What to watch next ?

• Looking at Bitcoin, a five-year chart reveals a repetitive pattern. A similar formation between 2021 and mid-2022 led to a collapse that met its target in 2023.

• Currently, with Bitcoin at $64,000, the pattern suggests a potential target of $40,000. These patterns are respected not because of magic, but because as more people believe in them, their actions drive the price toward that logical outcome.

• We will see if the market eventually reaches that $40,000 level.

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What To Read This Week ?

The Money Illusion: Is Nifty Actually Growing?

The M2 Mystery: More Cash, More Problems?

According to data shared by analyst Sumit Behal, India’s M2 Money Supply has surged by a staggering 120% over the last seven years.

For those wondering what "M2" actually is, think of it as the total "liquid" money circulating in the economy—this includes your physical cash, bank deposits, and post office savings.

When the RBI pumps more money into the system, the "base" of the economy expands. But here’s the kicker: if the amount of money grows but the actual value of goods and services doesn't keep pace, you aren't getting richer—the currency is just getting weaker.

The Great Nifty Parallel

The most eye-opening part of this data is the correlation between money printing and the stock market. Over those same seven years, the Nifty 50 has grown by roughly the same 120%.

On paper, your portfolio looks fantastic. But if the Nifty’s growth merely mirrors the increase in money supply, it suggests that there hasn't been significant real value creation. Instead, the market is simply "re-pricing" itself to match the inflated amount of cash in the system.

The "Feel-Good" Inflation Trap

Governments worldwide use this strategy. By steadily increasing the money supply, prices for assets like stocks and real estate climb. This creates a "wealth effect" where investors feel happy because the asset they bought for ₹100 is now worth ₹120.

However, this is often a psychological trick. If every other necessity has also increased by 20% due to the expanded money supply, your purchasing power remains exactly where it started. You’re running on a treadmill—moving fast, but staying in the same place.

Measuring What Matters: Gold & Performance

To identify true wealth creation, we have to look past the nominal percentages. Real growth only happens when an investment:

1. Significantly outperforms the M2 Money Supply.

2. Significantly outperforms Gold (the traditional hedge against currency debasement).

Unless your investments are beating these two benchmarks by a wide margin, you aren't necessarily "winning"; you’re just keeping your head above the rising tide of inflation.

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