How bad is a 10% fall in Nifty – find out!

A drawdown is defined as – 

“A drawdown is a peak-to-trough decline during a specific period for an investment” 

For eg. Nifty 50 went from 12,088 to 10,980 since early June or a Drawdown of ~10%. The markets are almost always in a drawdown. Only 6% of trading days since 1990 produced new market highs i.e for 94% of trading days the market was in a drawdown. The average drawdown for NIFTY 50 over the past 29 years has been -18%!!

The chart below shows how much the Nifty index was down on that date from the last all-time high. Spend some time in understanding it properly. 

So what about a -10% drawdown.

Nifty 50 has been in a -10% or worse drawdown in 59% of the trading days since 1990.

Read the above sentence again.

How about 1-years return after a -10% or worse drawdown? There is a 68% chance that the 1-year return after a -10% drawdown will be positive. The average 1-year return observed over the past 30 years post a -10% or worse draw is 21%. Of course your odds improve considerably the longer you are willing to hold equity index. Remember, invest for the long run. 

If that sounds exciting, do know the downside too. The worst 1-year return observed post a -10% or worse draw is -50%!! You can still lose half of what is left. But, the best 1-year return observed post a -10% or worse draw is 312%.

What if the market sinks another 10% for a drawdown of 20%? 39% of the time Nifty has been in a -20% or worse draw since 1990. Avg 1-year return is 27%, and you can still lose 44% from there in the worst recorded case.

So, there you go. It is never as bad as it seems. The historical odds are good and the only requirement from the investor is to avoid the behaviour gap.

DSP Mutual Fund has marked down its investment in non-convertible debentures (NCDs) of Coffee Day Natural Resources Pvt Ltd (CDNRPL) by half. In communication by the fund house it was specified that DSP Credit Risk Funds exposure to NCDs of CDNRPL was Rs 69 crores as on July 29, 2019. The fund house also said that the exposure is secured by a pledge on the listed shares of CDEL and a land parcel. 

As per a Finance Ministry Statement, the National Housing Bank (NHB) is infusing an additional ₹10,000 crore in NBFCs from Friday with a view to improving the flow of funds for housing loans. This would be in addition to two existing refinance schemes of the NHB. 

On Thursday US President, Donald Trump announced that he would impose a 10% tariff on $300 billion of Chinese imports. On the other hand, Beijing has promised to respond if the US insists on additional tariffs on Chinese imports. Amidst the abrupt escalation of the trade war between the world’s largest economies stocks across nations were trading low during the week. 

Index Returns
 Index   Weekly open   Weekly close   Change 
 BSE Sensex 37,882.79 37,118.22 -2.02%
 Nifty 11,284.30 10,997.35 -2.54%
 S&P BSE SmallCap 13,060.34 12,496.35 -4.32%
 S&P BSE MidCap 13,856.19 13,546.92 -2.23%

Source- BSE/NSE

Top 5 best performing funds
Name Week 3Y Category
ABSL Gold 3.3% 3.7% Fund of Funds
Reliance Gold Saving 1.9% 3.0% Fund of Funds
Kotak Gold 1.9% 3.5% Fund of Funds
Quantum Gold Saving 1.9% 3.2% Fund of Funds
IDBI Gold 1.7% 1.8% Fund of Funds

Source –

Top 5 worst performing funds
Name Week 3Y Category
HSBC Infrastructure -5.4% -4.0% Sectoral
IPRU India Opp -5.3% NA Sectoral
Reliance Tax Saver -5.1% 2.3% ELSS
Canara Robeco Small Cap -5.0% -8.9% Small Cap
DSP World Mining -4.8% 8.1% Fund of Funds

Source –

What investors bought

We saw the most inflows in these 5 Funds –

Name 1Y 3Y Category
Mirae Asset Large Cap 1.8% 12.1% Large Cap
Mirae Asset Midcap NA NA Mid Cap
HDFC Small Cap  -13.6% 10.4% Small Cap
Mirae Asset Emerging Bluechip 3.1% 13.9% Large & Mid Cap
Parag Parikh LTE 0.1% 11.6% Multi Cap

Source –

What investors sold

We saw the most outflows in these 5 Funds –

Name 1Y 3Y Category
HDFC Mid Cap -12.3% 6.3% Mid Cap
ABSL Equity Hybrid 95 -3.8% 6.1% Hybrid
Reliance Equity Hybrid  -7.1% 6.8% Hybrid
SBI Blue Chip -1.7% 7.5% Large Cap
Kotak Standard Multicap -0.9% 11.1% Multi Cap

Source –

Movers & Shakers

1/ SBI Mutual Fund has appointed Milind Agrawal (Equity Research Analyst) as Fund Manager of SBI Banking & Financial Services Fund.

2/ G Narayanan and Jaideep Singh have been appointed as Independent Directors on the board of Canara Robeco Asset Management Company Limited.

3/ Sandip Ghose has been appointed as Independent Director on the board of Motilal Oswal Trustee Company Limited.

4/ Aditya Birla Sun Life Mutual Fund has appointed Balasubramanian (Chief Executive Officer) as Managing Director of the AMC.

Quote of the week:

You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.

— Peter Lynch


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