The Two Monthly Charts That Matter

Here we're looking at the Nifty 50 and the Nifty Free Float Small-Cap 100 overlayed. While The Nifty 50 made new all-time monthly closing highs in November, yet the Nifty Free Float Small-Cap 100 Index remains roughly 30% below its 2019 highs.

Click on chart to enlarge view.

We've been talking about this divergence since it began in early 2018, identifying it as a signal of weakening risk appetite among market participants. Until Small-Caps can start to participate on an absolute basis, it's going to be tough for this top-heavy market to continue to make sustained upward progress.

With that being said...the Nifty Financial Services Index, which composes nearly 35% of the broader market's weighting, continues to make all-time highs as well. While the weakness in Small-Caps and overall lack of breadth in the market is concerning, it's tough to be bearish Indian Equities as an asset class if the largest sector continues to trend higher.

For a sustained bull run in Indian Equities as an asset class, we need to see these two move in tanden. With that being said, this is the market we have and can take advantage of the continued strength in Large-Caps and strong sectors like Financials through individual stocks.

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Allstarcharts Team