Nifty Slides to 17,000; Time to Accumulate?

The relentless fall in the benchmark Nifty 50 index has led it to crash to its major support of 17,000. At the CMP of 17,010, the index is down roughly 9.5% from the all-time high of 18,887. Now, how to capitalize on this fall?

The best approach for long-term investors is to accumulate Nifty 50 companies at these levels via ETFs (exchange-traded funds). Most investors are not well-versed in handpicking strong stocks for their portfolios and for them, sticking to top-quality companies in the country is a better idea. This is what index investing offers.

There’s no doubt that the trend is highly negative but these are the times that need to be capitalized on to fetch good prices for the long term. As Nifty 50 is now hovering around 17,000 it might be a good idea to deploy one tranche of total capital at these levels. Also, as the financial year is coming to an end, many investors might want to max out their ELSS investments to take advantage of section 80C. What’s a better time to get these beaten-down prices than at the year-end when most taxpayers are looking to minimize their tax burden!

As most of the ELSS mutual funds invest in top-quality companies, and use Nifty 50 as their benchmark index, tracking dips on Nifty 50 is a very good indicator to time your investment in ELSS funds or other index-based funds.

The next support is 16,750 and investors should get ready to deploy their next tranche there. This way, the total cost of buying keeps on decreasing over a period of time, making it a much better way to invest over the generic SIP route, wherein prices are not taken into consideration at all. But if the trend is down, can you benefit from the downtrend as well?

As Nifty 50 is also in the derivatives segment, one can use the combination of both ETFs and options to come up with strategies that are perfectly aligned with their view. One of the most common strategies is called ‘Covered Call’.

If investors have a decent investment in Nifty ETFs (equal to or more than the contract value in the derivatives market) then one can sell call options which would generate an additional source of income in case the market keeps falling. If the market shoots up, then the loss on the call option would not be more than the profit on ETFs. So your net position would still be in profits, the condition being, you have to realize your profits by selling your holdings.

Read More: Weekend Read: 3 Books to Make you an ‘Expert’ Options Trader!