We Found A Barometer for Global Fund Flows

Today’s Market Update

It was a decent day following yesterday's expiry. The markets finally seem to be decisively closing above the 26,000 mark. We are now a stone's throw away from an all-time high weekly close, and not too far from the daily closing high either, as we will see in the charts.

What's working in our favor is the strong performance in certain sectors, particularly PSU banking. The surprise performer is the IT sector, which is zooming up very smartly.

• The Nifty closed up 0.55% today, pretty much at the highest point recently and not far off the last year's high.

• Nifty Junior was marginally negative at -0.01%, showing the pull is concentrated in the large-cap space.

• Midcaps were up 0.32%, but Small caps were also not participating, down 0.42%.

• The Bank Nifty is zooming, largely led by PSU banks, hitting a new all-time high of 59,216.

• Gold was up 1.21%. Even more notably, Silver surged 2.55% and is poised to potentially form a cup and handle pattern, which could surprise everyone in the coming times.

Other Market Triggers

• IT stocks were shining, with Infosys up 3.68%, and HCL Tech, TCS, and Wipro all doing well.

• Hindustan Lever also performed well on news of a potential demerger. State Bank of India, Kotak Bank, and ICICI Bank also gained.

• Stocks losing ground included ITC, Maruti, Coal India, Adani Ports, and Bajaj Finance.

• In the Nifty Next 50 space, LTIM, Naukri, PNB, Bank of Baroda (PSU banks), and Motherson did well.

• Losers included Havells, CG Power, Siemens (in the capital goods space), United Spirits, JSW Steel, Adani Green Energy, Chola Finance, and DLF.

• The Mover of the Day was JP Power, which surged 15% after news that the Adani-Jaiprakash Associates deal got through.

U.S. Market Update

• In the previous session, US Markets were negative for the second consecutive day. Over the last month, the US markets have not made any gains. The S&P 500 was down 0.8%, Dow Jones 1%, and Nasdaq 1.2% down, though the Russell gained slightly.

• On November 18th, Home Depot was smashed down 6%, with its stock price plummeting from $430 to $336. This highlights the absolute necessity of having a planned exit strategy in any structured strategy, rather than just relying on hope.

• Other heavyweights also saw big drops: Amazon down 4.43%, AMD down 4%, Nvidia down 2.8% (a massive loss on a $5 trillion valuation), and Microsoft down 2.7%. The disclaimer states that some of these stocks could be part of the Weekend Investing U.S. stock strategy, but they are not recommendations to buy or sell.

What to watch next ?

• As Bank Nifty often leads the market's direction, its ascent provides confidence that the Nifty may also hit new highs, even if the broader market lags temporarily.

• Nobody expected the IT services space to become an anti-AI play, but it seems as AI stocks cool off, money is rotating into IT services, which is now poised for a breakout.

• Globally, there are fresh rumors that the India-US tariff deal is about to close. Furthermore, President Putin is trying to woo India with offers of higher technology defense arms ahead of his visit in a couple of weeks.

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📈 India vs. China: A Comparative Market Performance Deep Dive

The Nifty-China Ratio: A Barometer for Global Fund Flows

The focus of our analysis today is the comparative performance between the Indian and Chinese equity markets. To ensure a fair comparison, we examined a dollar-denominated ratio chart: Nifty 200 divided by China CSI 300.

This ratio helps us track which market is relatively outperforming the other, neutralizing currency fluctuations and providing a clear view of global fund sentiment.

• Nifty 200: Represents the top 200 stocks in India.

• China CSI 300: Represents the top 300 stocks in mainland China.

• The Ratio: When the chart goes up, Nifty is outperforming China. When it goes down, China is outperforming Nifty.

Historical Performance: The 2008–2021 Plateau

The ratio chart reveals two distinct phases:

1. The 2008 Peak and Subsequent Decline: The ratio formed a significant high in 2008. Following this peak, the ratio experienced a sharp decline, indicating a substantial period where the Indian market significantly lagged China's performance.

2. The Extended Underperformance (2008–2021): Crucially, the ratio failed to cross its 2008 high for over a decade. This prolonged consolidation phase suggests that, over this period, Nifty did not decisively outperform China. Fund flows, while volatile, did not favor India enough to break this long-term resistance.

💡 Observation: For 13 years (2008 to 2021), India's relative performance against China was capped, reflecting a period of intense competition for global emerging market investment.

The Recent Shift: Nifty's Breakout and China's Comeback

The long-standing resistance was finally broken in the post-2021 period, marking a significant change in the relative trend.

• The 2021-Mid 2024 Outperformance: After 2021, the ratio crossed its 2008 high, signifying a decisive shift where Nifty began to strongly outperform the Chinese market. This trend lasted until around the middle of 2024.

• The Current Correction and China's Re-test: Since mid-2024, the trend has reversed. The ratio has started to fall, indicating that China is currently outperforming India. The current move suggests a potential re-test of the previous breakout level (the 2008 high).

• Future Outlook: If Nifty successfully holds this re-test level and begins a new upward movement, it could signal a fresh, multi-year phase of India-focused fund flows.

The Global Fund Flow Connection

The relative performance ratio is a strong indicator of how global investment funds, which often allocate capital between major emerging markets like India and China, are shifting their focus.

• Current Fund Sentiment: The recent underperformance of Nifty (and outperformance of China) over the last year and a half suggests that global Foreign Institutional Investors (FIIs) have been rotating money out of India and into the Chinese market (or other alternatives). This explains the recent FII selling observed in the Indian market.

• The Next Pivot: The analysis suggests that investors are closely watching the ratio's current decline. A sustained uptrend, which would happen if Nifty begins to make a new relative high against China, will likely trigger a renewed flow of global funds back into the Indian market, similar to the strong inflow periods seen after the 2009 recession or the 2021 breakout.

🔑 Key Learning

Relative Performance is Cyclical: The flow of global institutional capital between major emerging markets like India and China is highly cyclical. The Nifty/China ratio acts as a reliable leading indicator for these long-term rotations. A declining ratio suggests a relative preference for China, while a rising ratio signals a preference for India.

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