Today it was Bank NIFTY RIP...who is Next?

 

The conclusion to my previous article Pressure Building on Distribution Business ..Series 1 is that the distribution industry has built up huge costs for earning upfront revenue backed by the bull market for the past 4 years. They have lacked a scenario analysis and most importantly AUM business has been neglected and only wealth structure products like MLDs unlisted shares, and real estate products have been sold at hefty premiums. Many retail outfits have come up with wealth channels expecting robust growth opportunities but the price of acquisition of employees is so high that even a 2 months dullness would cost the profits and revenues significantly.  Overall, there is a high requirement for every wealth outfit to revisit their goal boards and reset the business so that in 2025 the business remains profitable.

The recent noise related to investors losing in F&O has raised lots of unnecessary concern within investors. The Indian market growth can only be capped by the Indian regulators and not by global events, harsh but that’s the truth. The Mutual Fund Distribution community has faced a significant impact due to a huge list of regulations, audits, and checks. The broking industry has one of the highest checks and balances protecting the investors but still, we keep adding more audits, rules, and regulations which now turns out that compliance cost is more than the salesperson cost. The F&O has been a sensitive product and it was not meant for retail investors but the product pricing since the day it came was designed for retail clients to participate. Now when the maturity of the product has gained along with the investors' maturity the product cannot be blamed. For example in the last 6 years government has been pushing hard to increase the participation of retail clients in bonds. Now tomorrow if their hefty loss in the bonds due to MTM will you blame the product investors or the market?

F&O losses % of 90% are not new. People have made money and also have lost money. The risk-taking ability of Indian investors has grown significantly which the government is not able to accept and understand. The definition of retail clients has changed and hence one needs to frame guidelines for the same. There was no need to put bank NIFTY weekly expiry in Rest in Peace mode.

F&O contracts play a critical role in envisaging the future of an industry, market, country, and its macro statistics. Again it is well clear that we are unable to gauge investors' maturity in India. The below analysis is an eye-opener for all the new investors who have been informed that F&O is scary. The evolution of NIFTY speaks loudly that investors have made money from the same instrument too. Further, the ETF market has matured significantly in India but the biggest question is whether does government has any cognizance of the same?  Does the government have any clue what impact these decisions have on FII's inflow and other global investors investing through different routes in India?

The nifty has gone through a remarkable journey from 1995 to 2021. The ups and downs of the same speak loudly that during that time also investors invested and traded in F&O.

1. Overall Trends

The Nifty 50 TR Index displays significant volatility across the years, with notable periods of sharp growth and steep declines.

The highest annual return recorded was 77.6% (2003), signaling a strong recovery after prior years of poor performance.

The lowest annual return was -51.3% (2008), reflecting the impact of the global financial crisis.

2. Bullish Phases

Several years stand out as periods of strong positive performance:

2003–2007: A prolonged bull run characterized by double-digit annual returns, peaking at 76.6% in 2003 and ending with 56.8% in 2007. This period reflects economic growth and market optimism during a global economic boom.

2014 and 2017: Both years saw strong market rebounds, delivering returns of 32.9% and 30.3%, respectively. These performances were likely driven by favorable policy reforms and investor optimism in India.

3. Bearish Phases

The index experienced significant drawdowns during global or domestic economic downturns:

2000–2001: Consecutive negative returns of -13.4% (2000) and -15.0% (2001) marked the bursting of the dot-com bubble.

2008: A sharp decline of -51.3%, the worst in the chart, reflects the fallout of the global financial crisis.

2011: A loss of -23.8% attributed to the European debt crisis and slowing domestic growth.

2015 and 2018: Marginal losses of -3.0% and -4.6%, respectively, due to policy uncertainties and global trade tensions.

4. Recovery Periods

The index displayed resilience, recovering quickly from downturns:

After the 2008 crash, the market rebounded strongly in 2009 with a 77.6% return, the highest recovery in the observed period.

Post-2011 downturn, the index gradually gained momentum, leading to a 29.4% return in 2012.

The Covid-19 pandemic-induced volatility in 2020 saw a modest gain of 16.1%, followed by a sharp recovery of 24.6% in 2021, reflecting global monetary easing and vaccination-led economic recovery.

5. Stability Periods

The years 2012–2013 and 2018–2020 show moderate to low growth, suggesting periods of stabilization after high volatility in preceding years.

Key Observations

Cyclicality: The Nifty 50 TR Index displays cyclicality, alternating between periods of rapid growth and downturns in response to domestic and global economic factors.

High Volatility: Years with returns exceeding 30% were often preceded or followed by sharp negative returns, indicating high market sensitivity.

Resilience: The Indian stock market demonstrated an ability to recover from major downturns relatively quickly, supported by strong macroeconomic fundamentals and investor confidence.

Conclusion

The Nifty 50 TR Index has seen a dynamic journey, reflecting both opportunities and risks inherent in equity markets. The long-term trend highlights the importance of staying invested through market cycles to benefit from recoveries and sustained growth. Investors should remain cautious during periods of excessive optimism or pessimism, aligning their strategies with long-term goals and market fundamentals.