Indian Stock Market has witnessed a massive fall in the last one month. The selling pressure has aggravated this week especially in the broader market stocks which is not reflected in the benchmark indices Nifty and Sensex.

Nifty is down only 2.35% from its all-time high of 22,526. However, when you look beneath the hood you know what’s ailing the market.

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Nifty Smallcap index tracks the top 251 to 500 companies by market capitalisation and Nifty Microcap index tracks the top 501 to 750 companies. These indices are down 10% and 11% from their 52 week highs. Individual stocks in these indices are down much more. Stocks from these indices are where retail investors generally have maximum exposure. If you are wondering what to do now that your portfolio is deep in the red then here’s a template you could follow.

A stock which falls more than 20% from its highs is considered to be in a bear market. Technical definitions aside…a stock that falls 20% will need to move up 25% to recover losses. As the fall increases further chances of recovering these losses become thin. You need a 100% gain to recover a 50% fall…you get it right.

You can keep a threshold of 20% fall from the highs. If a stock in your portfolio has fallen more than 50% from its highs then it’s time to eat the humble pie and book your losses.

Here’s what the data of the top 746 companies by market capitalisation suggests…

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Out of 750 top stocks only 121 stocks are currently trading within 10% of their 52 week highs. This is 16% of the total. If the majority of the stocks you hold are in this bucket then you are the lucky one. Continue to hold them in your portfolio. These are the likely candidates to lead the next up move.

275 stocks are currently trading within 10-20% of their 52 week highs. This is 37% of the total. Stocks from this bucket do stand a fair chance to bounce back and lead from the front. But one must watch out for stocks which slip below the 20% mark.

There are a total of 243 stocks which are down anywhere between 20-30%. These are the ones which have just accepted defeat. It’s better to exit these before the damage increases.

A total of 81 stocks have slipped between 30-40% from their 52 week highs. These stocks were probably under pressure much ahead of the other stocks. They are already in a down trend and shorting candidates for bears on a bounce back.

Finally, 30 stocks are down more than 40% from their highs. If you hold any of them then it’s best to exit them at the first instance. These are probably not seeing the light at the end of the tunnel any time soon.

Now this isn’t a foolproof way to remove the weeds from your portfolio. It won’t guarantee best results. But this is good enough for common retail investors to decide what to do with their portfolio.

Professionals look at several other factors apart from % fall from 52 week highs to decide what to do with stocks in portfolio. But retail investors don’t have all the time and resources to do the same. Hence, this would be a better and easily applicable framework.

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The Nifty concluded the week at 22,023, marking a decline of 2.09% during the previous week. Most of the sectors have collapsed, with Nifty PSE, CPSE, and Realty being the worst hit, declining by nearly 9-10% in just one week while Nifty IT ended with a gain.

In the daily time frame, Nifty fell below the rising trendline and the 20-day moving average (DMA). The 22,000 level remains a crucial threshold, as bulls aim to maintain this level while bears attempt to push the index below it.

The next important support level remains at 21,800 followed by the 21,700 level with resistance placed at 22,350.

It is worth noting that the primary trend has slowed down but has not yet changed.

The US Indices also appear to be in an overbought zone, indicating a potential correction. Investors are mindful of this situation. The impact was felt in small and mid-cap segments affecting market sentiment. However, FMCG and IT may perform well after experiencing excessive sell-off, and a healthy pullback is anticipated in the upcoming sessions.


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