Right in this piece I am going to walk you through exactly how I do this on WealthLab. And I am splitting it into two parts. First, we find out what is leading right now. Second, we find out what could lead next. If you have any questions, drop them in the comments. Let's get into it.

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Side Note: If you are someone who prefers to watch rather than read, you can follow the video version on the link below, do not forget to subscribe:

Setting Up The Dashboard

You do not need fifteen indicators to figure out leadership. You need three.

A stock chart. An industry tracker. And a sector rotation chart.

I have already built this dashboard for you, but let me walk you through it so you can build your own.

First, add the Industry Tracker widget. This is going to be your most important widget on this entire dashboard, because this is where leadership actually shows up first.

Second, add the Sector Rotation Chart. This tells you whether an industry’s leadership is growing, shrinking, or just sitting still. Whether you should be paying attention to it or not.

Third, add a candlestick stock chart. Because in the end, all the leadership in the world means nothing if the actual stocks are not moving.

Three widgets. That’s it. That’s your entire leadership dashboard.

Now lets go to how we can find the current sector leaders here.

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Who are the Leader of Today?

Inside the Industry Tracker, the number that does the heavy lifting is Average RS. Relative Strength.

Relative Strength is simply this. Which sector, which industry, is outperforming the broader market. Where there is no selling pressure and people are still buying.

These are the industries that go up faster when the market goes up, and correct less when the market corrects. That is what makes them leaders, not just participants.

So let’s look at what is on top today.

Distribution comes in first with an Average RS of 89. Five stocks in this industry, and four of them, 80 percent, are already in Stage 2 momentum. An RS of 89 means this industry is outperforming 89 percent of the market.

Then Animal Healthcare at 83 RS and Wires and Cables at 70 RS with more stocks in the mix.

Know If the Strength is Rising or Falling

The Four Quadrants Of Sector Rotation

Open any industry and you will find its rotation chart. This is simply that industry’s relative strength over the last five weeks, plotted as a curve.

There are four quadrants here. Improving, Leading, Weakening, Lagging.

Improving means the industry is getting better. Leading means it is currently outperforming. Weakening means the strength is starting to fade. Lagging means it has fallen behind, gone stale.

Take Wires and Cables. Until 5 weeks ago, it was lagging, and now it has started bending toward leading with increasing strength.

The curve is important. See Animal HealthCare (#3 in the table above), although it is a high RS 83 industry, the curve has started to go towards lagging, meaning the industry is now losing its strength.

Never trust the industry number alone. Open the individual stocks and see if the whole group agrees with the story or if only a few names are carrying it.

How To Track Tomorrow's Leaders

Let me walk you through the second half of this framework.

Same dashboard. Same Industry Tracker. But now look next to the Average RS column. There’s a small triangle icon. That triangle stands for change. Change in strength.

Toggle it once and it shows you the one week change. Toggle it again and it shows you the five week change.

This is the number that matters for finding future leaders. If an industry’s strength has climbed by 24 points over five weeks, that industry is building strength right now, even if it isn’t at the top of the table yet.

Change in rank is what tells you where the money is rotating into next.

Here’s a clean example. Animal Feed was sitting at number 50 on the plain leaderboard. Not interesting at first glance.

But sort by five week change in strength, and Animal Feed Indsutry jumps to first in the entire market. That’s a stock group going from Weakening straight into Leading.

This is a sector most people were not tracking, because it did not look interesting on the standard leaderboard. But the change in strength told a different story weeks before it became obvious.

Check its rate of change. That's where tomorrow's leadership often hides

Let Me Bring This All Together

So two things we learned today.

Remove the change filter, and the top of the list shows you the current leading sectors.

Add the five week change filter, and the top of that list shows you the possible future leading sectors.

You can confirm either one the same way. Open the sector. Look at the curve. If it’s climbing, you’re on the right track.

If it’s turning down, like we saw with Animal HealthCare, that sector’s power is fading, whether or not the leaderboard has caught up yet.

Leadership is not a fixed label. It's a direction.

That’s how you find the sector leaders and track sector rotation using WealthLab. If you have questions, drop them in the comments. And if there’s another topic you want me to cover, tell me that too.

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I wish you a lot of wealth, and a lot of good trades in the coming week.

Yours, Saksham

Welcome to Episode 20.

Every week, the WealthLab community gets together to talk about what’s happening on the platform, in our own thinking, and in the market.

This week: a few platform updates, a deep dive into Post Earnings Announcement Drift, and a quick read of where the market stands.

Let’s get into it.

Side Note: If you are someone who prefers to watch rather than read, you can follow the video version on the link below, do not forget to subscribe:

Coming soon — TradingView indicators (invite only).

Two scripts, exclusively for WealthLab members:

• A relative strength line — directly on TradingView, daily and weekly

• A stage indicator — stage lines, entry and exit dates, all on TradingView

Target is end of this month. Everyone gets an email and notification when it’s live.

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Post Earnings Announcement Drift

This was the main segment of Episode 20. One of the most practical concepts we’ve covered

What is PEAD?

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After a stock posts a positive earnings surprise, it doesn’t just pop and stop.

It drifts. For weeks. Sometimes months.

The reason is simple. When something fundamentally changes about a business — margins, management, a structural tailwind — the market doesn’t price it in instantly.

Investors take time to update their models. Build conviction. As more of them do, the buying keeps coming.

The stock keeps drifting.

Why does this work if earnings are public information?

Fair question. The data is public.

But the implication of that data is not immediately understood by everyone.

Think about what happened with the GST change for the auto sector in August 2025. Stocks moved 7–8% the same day. But they kept drifting higher for weeks — because people were still doing the math on what it actually meant for margins and volumes going forward.

Earnings work the same way. The surprise is instant. The full repricing takes time.

How to find PEAD stocks on WealthLab

The setup takes five minutes. Here’s how it works.

Build the dashboard.

You need four things:

1. Candlestick chart

2. Industry tracker to check for the industries that are leading in the earnings season

3. Stock Fundamentals to look for PEAD anomalies (high EPS, lifeime high revenue, high OPM, or anything else)

4. Quarterly P&L fundamentals for those industries to validate the earnings thesis

5. Earnings announcements to learn more about what management said, what changed

Save it as your PEAD screen. Come back to it every week during earnings season.

Switch to 3-month RS.

The 12-month RS is too slow. It uses a full year of history and won’t pick up a fresh earnings move quickly enough.

The 3-month RS is more sensitive. It catches recent price action faster, exactly what you need here.

1. Start with the Industry Tracker

Once you’re on 3-month RS, sort industries by their 1-week change in average RS.

This week: QSR jumped 31 points. Sugar at 15. Public banks at 13.

Anywhere you see a 25–30+ point jump in a single week, something happened. Usually it’s earnings.

2. Drill In

Click into the industry. See which stocks moved the most on 3-month RS in the past week. Cross-reference with the earnings calendar — have they reported?

Devyani up 20% on earnings surprise, with 303% growth in EPS, 1st Quarter in positive with highest revenue. Just follow the trail, the management said highest ever revenue in the concall as well!

3. How to trade PEAD stocks

PEAD stocks are not buy-the-dip trades.

They drift. If you wait for a clean base to form, you’ll often miss the move entirely.

Two ways to approach entries:

Entry 1: If the stock dips after the initial move, watch for a breakout on that dip. Keep the stop loss tight. Size down accordingly — the reaction can be fast.

Entry 2: If it moves sideways and the moving averages start to catch up — use the MA as your stop and enter as the trend resumes.

These stocks usually don’t give you a second or third entry. If they do, nothing beats that. But don’t count on it.

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What the Market is Saying

Quick snapshot from this week’s data.

Nifty 500 was up 1.13% last week.

124 stocks made 52-week highs — among the highest since we bottomed in April 2026.

The number of stage 2 stocks is at its highest since November 2025, just before the second correction set in. We’re sitting around 20.5% right now. The historical average is 27%.

Below 27%, the environment is selective. You have to pick well.

Above it, broad-based momentum kicks in and the game gets easier.

We’re not there yet. But the direction is right.

The Nifty 500 broke out.

A volatility contraction that had been building resolved to the upside last week. Not a massive candle — but we’re above the long-term resistance zone.

If this holds, I think we see a move toward the all-time high at 24,470, and potentially 24,500–25,000 by September–October.

After that, let’s see what the data tells us.

Twenty Episodes In

No predictions. No tips. Just the data, the frameworks, and whatever clarity we can extract from the noise.

We’ll be back next week with the same.

Until then — trade great stocks, protect your capital, and enjoy your life.

Yours,
Saksham

Not investment advice. WealthLab and the Lab Look Back are for educational purposes only.

"Price is a liar in the short run.
 But over a long enough horizon, it always tells the truth about earnings."

Before we get into this week’s session, we want to ask you something.

If an industry’s profit after tax grows at 16% consistently for 6 to 10 quarters, what happens to its stock price?

Track Results on WealthLab

Welcome to episode 19 of the Lab Lookback with WealthLab.

This week we cover the rise of Indian IT after a 20% weekly surge, the India high frequency macro data we have now built into WealthLab, and the weekly market recap.

Let us get into it.

Side Note: If you are someone who prefers to watch rather than read, you can follow the video version on the link below, do not forget to subscribe:

Before We Start: A Question for You

Before we get into the session, we put a chart up on with a question.

If an industry’s profit after tax grows at 16% consistently for 6 to 10 quarters, what happens to its stock price?

Think about it like a lemonade stand. It sells Rs 100 of lemonade today and is valued at Rs 1,000. That is a 10x PE. Over the next 3 years it grows at 16% every quarter.

At the end of 3 years the lemonade stand is selling Rs 600 worth of lemonade. If the PE stays the same at 10x, the price is now Rs 6,000. That is a 3 to 4x return.

This is not theory. Over a long enough horizon, the price of a stock follows its earnings. That is how fundamentals and valuations function. That is how the big money operates. We as momentum investors are just trying to catch a small chunk of the big move.

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This Week’s Topic: Rise of the Dead

Indian IT just posted a 20% gain in a single week.

That is blockbuster. That is the kind of move that demands attention. So let us unpack what actually happened and what the data is saying.

Nifty IT: Ignored and Oversold

Nifty IT was trading at around 26,000 in June 2021.

In June 2026 it is trading at around 26,000 again.

Six years. Zero returns. This while Nifty itself went up 180% from the COVID lows.

The problem was not that Indian IT stopped growing. Revenues kept coming in. There was no degrowth. The problem was a narrative.

When AI came into play, the terminal value of these businesses was estimated to go to zero. Markets started pricing in that these companies would become irrelevant. The PE of Nifty IT came down to 13 to 14x from historical averages of 20 to 26x.

That is the de-rating story. Not earnings collapsing. Just the market deciding these businesses had no future.

The PE De-Rating Story

Look at the actual numbers.

TCS: 10-year average PE of 26. Current PE of 14.5x. Discount to history: minus 44%. Infosys: 10-year average PE of 22.6. Current PE of 14x. Discount: minus 38%. Wipro: 10-year average PE of 18.3. Current PE of 14x. HCL Tech: 10-year average PE of 19.6. Current PE of 17.2x.

Top 4 large cap IT stocks are trading at a 36% discount to their own 10-year average.

FCF yield across them is 6 to 7%. Shareholder yield is 5 to 6%.

De-rating stories create the biggest entry opportunities when the narrative is wrong. The question is always whether the underlying business is actually broken or just being priced as if it is.

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But Does an Eroding Industry Post 16% PAT Growth?

This is the real question.

If the market was right that AI would kill Indian IT, earnings should be declining. Revenue falling. Headcount shrinking.

But that is not what the data shows.

Median sales growth for Nifty IT is at plus 15.8%. Median operating profit growth at plus 14.3%. Median PAT growth at plus 16.3%. Median EPS growth at plus 17.6%. 8 out of 10 companies have declared results.

This was the positive surprise. Not an extraordinary quarter. Just a confirmation that the industry is delivering on earnings when the market had priced in that it would not.

The first signal came from the March quarter. Nifty IT started stabilising. Now the second consecutive quarter of good results has arrived. Nifty IT moved 20% in a week.

What Does the Management Say?

We went through the concalls of the top Nifty IT companies. Here is what they are actually saying.

TCS said their approach is not to optimize margins but to invest in capabilities that strengthen long-term competitiveness. They are investing in a one gigawatt data center. Capital allocation policy unchanged. Committed to returning substantial free cash flow to shareholders while investing for long-term growth.

HCL Tech reported a 62.1% year on year increase in AI revenue, up 10.6% quarter on quarter. They have planned a Rs 3,500 crore capex into data centers targeting 50 megawatt capacity long term. Their exact words: the megawatt is not the product. It is just the anchor. The value is in the full stack AI high-margin services wrapped around that capacity.

Infosys reported that 8.2% of total revenue now comes from AI, up from 5.5% three quarters ago. Double digit quarter on quarter growth. The AI pipeline is already larger than the current 8% revenue share. Management sees AI as a growth engine long term.

Get Earnings Summary In A Click

The narrative that AI kills Indian IT is being challenged by the companies themselves.

Both TCS and HCL also increased headcount. When a company is hiring more people it means they have work coming in. The industry was written off far too early.

You can now read AI summaries of all these concalls directly on WealthLab under the announcements and earnings section.

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20% Price Gain in July 2026. 20% Down Year to Date. Is It Tradeable?

This is the honest question.

Nifty IT has moved 19% in the last month. But year to date it is still down 20%.

The index is still in stage 4. It touched the 200-day moving average and corrected from there, closing below the 150-day moving average as well. It closed below both the 30-week and 40-week moving averages.

This distinction matters. Bottom fishing has happened. But momentum has not arrived.

Momentum requires a sustained trend. A 20% move after a 40% drawdown is not momentum. It might be a strong bounce. It might be the start of something. But it is not yet tradeable from a stage analysis point of view.

Another pullback is possible from here. It may test the 50-day or the 10-week moving average before trying to make another up move.

How to Play Indian IT Fundamentally

We applied four quality filters on WealthLab across the 522 companies that have declared results so far.

Current quarter EPS growth above 20%. Operating margin above 15%. ROE above 15%. PE below 20.

Six out of 23 companies passing all four filters, which is 26%, come from technology.

That needs to sustain next quarter. If Q3 also delivers, the narrative shift accelerates and the price follows.

How to Play Indian IT Technically

The range is clear.

Base around 27,000. Resistance at 32,000. If Nifty IT breaks above 32,000, the technical target is 40,000.

From 32,000 to 40,000 is a 23 to 24% move if the breakout happens.

On individual stocks: Coforge has already broken out and moved. Tech Mahindra has formed a proper base and given an up move. Persistent Systems is trying to break out but facing resistance. HCL Tech is still setting up.

With the 200-day still acting as resistance, a pullback is likely before the next move. If a pullback comes, watch which stocks hold up and which correct the most. The stocks that hold during the pullback become the leaders of the next rally.

If there is no breakout above 32,000, we discard this thesis and move on to other trades. The thesis depends on the breakout.

Catch All the Live Data at WealthLab

Introducing India High Frequency Macro Data on WealthLab

We have launched a new Indian Economy tab on WealthLab.

Seven tables covering the full picture of where the Indian economy stands month by month. Consumption and demand, industry and manufacturing, services, fiscal, monetary, external, and flows.

Why does this matter for traders?

If you had tracked these numbers last year when consumption demand indicators were all negative, you would not have been churning your portfolio looking for quick trades. There was no engine running. No demand means no corporate profits. No corporate profits means no stock prices going up.

From April 2026 onwards these numbers have started to improve. That has coincided with markets stabilizing. The war is still on. Oil is still elevated. But demand has started to pick up.

This data is updated once every month and will be covered in the last Lab Lookback of every month. All seven tables are on the platform and every metric has a hover explanation so you know what it means and what numbers are considered healthy.

Check Out the Macros

Consumption and Demand

Auto sales picked up sharply after the GST cut last August. But since then there has been a consistent dip. Right now auto numbers have started to recede including utility vehicles. This needs to be watched if you are holding auto sector stocks for the medium term.

Two-wheelers are still holding up at 18.7% year on year growth in June 2026.

CPI inflation is at 4.4%, majorly from oil. Core CPI, which excludes fuel, is at 3.55%. That is within the healthy range. An inflation of zero or below 2% is not good because it kills nominal growth. We want 3 to 5%.

Explore Consumption/Demand Macro

Industry and Manufacturing

Credit to industry has picked up significantly. It went from 5.9% in July 2025 to 19.1% in May 2026. That is a meaningful improvement.

But coal and oil production are down. Eight core industries, which include petroleum, electricity, steel, coal, cement, and fertilizers, are seeing a reduction in growth rates. The supply side is under pressure from high oil prices.

Manufacturing PMI has flatlined since the Trump-Iran sanctions picked up in the past couple of months. Credit to industries has picked up which is a good sign. But if oil prices continue to come down, all of these supply side indicators should start turning green.

Explore Industry/Manufacturing Macro

Services

May 2026 was the first month that showed a meaningful pickup in the service economy.

Services PMI is at 57.4 in June 2026. Credit to services has grown to 18.9%. Housing loans have picked up from 9% growth to nearly 11%. Personal loans are growing at 15.8%.

The banking sector is pushing the engines here. This is also exactly why private banks have been a strong theme for the past several weeks.

Explore Services Macro

Fiscal

Government total expenditure has seen 9% to 23% year on year growth across different months in 2026. Capital expenditure will likely continue to stay elevated as elections approach.

However eway bills, which track interstate movement of goods, are not growing at the same speed as expenditure. GST collection has come down from the strong readings of August to September 2025. These numbers need to improve for the economy to be running at full capacity.

Explore Fiscal Macro

Monetary

Liquidity which was once restricted has started to relax. The M3 to M0 ratio has picked up from October 2025, meaning more money is flowing back into the economy.

The 10-year G-sec yield shot up to 7% and has now started coming down to 6.86%. If it stays above 7% for long, RBI may have to raise repo rates. It is cooling down but needs to be monitored.

Credit to deposit ratio has moved from 79 to 82.6. Banks are more actively lending into the economy. That is another reason why BFSI and NBFCs have been showing up in the data consistently.

Explore Monetary Macro

External: Rupee Undervalued, FII Equity Still Negative

The RBI governor recently said the rupee is undervalued.

The real effective exchange rate, which measures the purchasing power of the rupee across 40 currencies, is at 89.2. Fair value is around 97 to 100. Below 100 means undervalued.

Why is it undervalued? FII outflows have been persistent for a long time, reducing demand for the rupee. When FII flows return, the rupee will strengthen. That is the natural tide.

The crude oil Indian basket peaked in March 2026 at around 124 dollars per barrel and has now come down to 83.9. That is a meaningful relief for the broader economy.

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Flows

June 2026 saw a 5.5 billion USD net inflow in debt after a long series of outflows in that space.

FII net equity is still negative at minus 5.2 billion for June 2026. Equity flows have been negative consistently. July data will be updated soon.

SIP flows have picked up and are now at 321 billion rupees in June 2026. Mutual fund net equity is also recovering.

The single biggest factor to monitor is FII net equity flows returning to India. Until that turns decisively positive and stays there, there is a ceiling on how broadly the market can rally.

Explore Flows Macro

What Happened in the Markets Last Week

Nifty 500 had a blockbuster week. Up 2.23%.

1,101 stocks advanced. 979 declined. 83 new 52-week highs versus only 17 new 52-week lows.

Stage 2 stocks are at 18.66%. Breadth across the 200-day, 100-day, and 50-day moving averages improved by 5 to 6% each.

Check Out Market Recap

Breadth Improved for Nifty 500. But Not for Everyone.

Here is the nuance that matters.

In the top 500 stocks, the percentage above the 200-day moving average improved from 51% to 56%. Meaningful.

In the top 2,000 stocks, it flatlined. 49 to 49 on the 50-day. 61 to 60 on the 100-day.

The top 500 stocks are doing much better than the broader micro cap universe. The large cap versus small cap thesis we covered last week is playing out in the breadth data right now.

Rotation Has Started to Reverse

The Nifty Mid Small 400 to Nifty 100 rotation ratio was forming an upward sloping flag.

An upward sloping flag typically breaks to the downside. And that is exactly what happened.

This means the ratio is starting to correct. Either small and midcaps underperform, or large caps outperform even more. Over the past two weeks Nifty 50 and Nifty 500 have both done better than small and midcaps. That decline in the ratio is confirming what the data was already telling us.

Stage 2 Pipeline: IT Makes Its First Move

58 entries into stage 2 this week. 70 exits. Net minus 12.

Despite markets going up, there are 12 fewer stocks in stage 2 on a net basis. Breadth is still narrow. Selectivity is still required.

The big story in the pipeline is IT. IT products and services are making their first run into stage 2. IT products gained 3 net new names. IT services gained 2 net names. This is the first signal that IT might be coming into strength. It may not sustain immediately as this is the first leg. But it needs to be monitored.

Generic drugs have entered the party alongside pharma APIs and formulations. Pharma continues to be a strong sector. Steel has picked up with 8 out of 29 stocks in stage 2, but steel is cyclical and macro data says steel production is under pressure.

Check Out Stage 2 Pipeline

What Gained and Lost Relative Strength This Week

RS winners this week: Nifty Services at plus 20 RS points. Nifty IT at plus 18 RS points. Nifty Media at plus 15. Nifty Metal at plus 10. Nifty Auto at plus 7.

RS losers this week: Nifty Chemicals minus 28 RS points. Nifty Realty minus 17. Nifty Bank minus 17. Nifty Private Bank minus 15. Nifty Capital Markets minus 10.

Private banks and Nifty Bank have pulled back after two consecutive weeks of more than 10% returns. If you do not yet have a position in private banks, this pullback may be an entry opportunity, not a reason to stay away. The 12-month RS for private banks is still holding while the 3-month RS is dipping. That means the broader trend is intact, just digesting.

Chemicals and reality, which were leading for the past couple of weeks, have started to correct.

Within BFSI the baton has moved from private banks to financing companies and banking services. They are the new leaders within the sector. Ecomm platforms which gave great results recently have taken a short-term hit.

In the sector rotation chart, the leading quadrant now shows paints, packaging, auto, jewelry, and technology. Cinema has picked up significantly. Distribution and supply chain and logistics are also showing strength.

To Bring This All Together

Indian IT posted a 20% weekly gain. But it is still down 20% year to date and still in stage 4.

The fundamental case is building. Median PAT growth of 16 to 17% for two consecutive quarters. Headcount increasing at TCS and HCL. Management investing in AI infrastructure and data centers. PE across the sector still 30 to 44% below 10-year averages.

The technical case needs one more thing. A pullback that shows which stocks hold up, then a breakout above 32,000. If that happens, 40,000 is the next stop.

The macro data is improving from April onwards. Demand is picking up. Credit is growing. Liquidity is easing. Supply side is lagging because of oil but that is changing too.

The rotation is shifting toward large caps and IT is beginning to show up in the data everywhere.

We are not saying enter today. We are saying build the watch list now. So that when the setup comes, you are not scrambling.

The cycle has always been running. It just changed direction.

Yours, Saksham

Have any doubts? Comment below we read every one of it.

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"The further you get away from yourself, the more challenging it is to not feel lost." — Sheryl Crow

Before we started this week’s session, we showed everyone a chart.

Just a line moving up and down inside a regression channel. Top band. Center line. Bottom band.

We asked: is this going up or going down from here?

The answers were all over the place. Bottom forming. Downtrend. Sideways. Stay away. Mixed opinions across the board.

Why don’t you give your opinion as well? Lets call this CHART 1

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Welcome to episode 18 of the Lab Lookback. Today we are talking about mean reversion. The idea that markets, ratios, valuations, and cycles always come back to the center. And why knowing where you are in that cycle is one of the most valuable edges you can have.

Side Note: If you are someone who prefers to watch rather than read, you can follow the video version on the link below, do not forget to subscribe:

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Before Chart 1: Nifty 500 to Precious Metals (Chart 2)

Does the chart 2 above look similar to Chart 1? The above is the ratio of Nifty 500 divided by the price of gold and silver combined.

When this ratio is at the top, Nifty 500 is overpriced versus precious metals. When it is at the bottom, Nifty 500 is underpriced versus precious metals.

In 2022 this ratio was at the top. That was the right time to buy gold and silver. Not equities.

In 2023 and 2024 the same story. Nifty 500 was overpriced versus precious metals.

Now it has flipped. After gold and silver had a massive rally, Nifty 500 is now underpriced versus precious metals. The ratio has come back down.

The Key Point: Markets Revert to the Mean!

But this was not actually the chart we were asking you about. That was just similar in structure. Let me show you the real one.

Chart 1: Nifty 50 vs Nifty Small Cap

The chart we talked about at the start was the ratio of Nifty 50 divided by Nifty Small Cap.

Right now this ratio is close to its long-term bottom.

For this ratio to revert to its mean, one of two things has to happen. Either Nifty Small Cap falls. Or Nifty 50 rises faster than Nifty Small Cap.

We have had two years of underperformance in Indian markets versus their own history. The probability of small caps correcting by a huge margin from here is low. They have already gone through a significant correction.

So the more likely path is that Nifty 50 needs to outperform Nifty Small Cap for some period ahead.

That is the mean reversion trade hiding in plain sight right now.

Why the Cycle Favours Large Caps?

Now let us build the full case. Let us take you through the data.

We have seen evidence of this in just the last week. Nifty 50 went up by 0.87%. Nifty Midcap went down by half a percent. Nifty Small Cap went up by just 0.2%. One week is not a barometer but the direction is starting to show.

If you look at all-time performance across Nifty 50, midcaps, and small caps over a long enough period, the returns are actually similar. They do not all deliver at the same time. They take turns.

Small caps had their time in 2022, 2023, and 2024. Large caps have not had theirs yet.

If you can position in large caps when large caps are going to perform, and in small caps when small caps are going to perform, you generate alpha over and above the market. You ride the uptrends and avoid the sideways and down cycles of each.

That is the whole point of understanding cycles.

The Return Distribution

Small cap returns are lumpy. In some years they give minus 25%. In other years they give plus 50%. There is very little concentration around the center. You either have a great year or a terrible one.

Nifty 50 returns are more normally distributed. Most years cluster around 10 to 15%.

Median Rolling Returns are consistently higher for Nifty Top 10 EW.

Now you might say we want the 50% years. Fair enough. But those come with drawdowns just as large. A 40% year is often preceded or followed by a minus 30% year.

Those drawdowns with your emotions. Premature exits. Doubting your conviction. Irrational decisions. That is how returns get destroyed.

The more stable profile of large caps means lesser drawdowns in most years. And lesser drawdowns help you stay in the position longer. Big returns in markets are made by those who can hold for two years, three years. A 24% CAGR doubles your money in three to four years.

In 10 out of 19 years since 2007, the Nifty Top 10 equal weighted index has outperformed the Nifty 50, 100, and 500. That is a consistent edge.

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The Nifty 50 Technical Setup Right Now

If you look at the Nifty 50 chart on the daily timeframe, what you are seeing is a volatility contraction.

First there was a 10% dip. Then an 8% dip. Now the pullbacks are only 2%. The top line, the resistance or pivot level, is staying the same while the dips are getting smaller.

That is the definition of a volatility contraction pattern.

If Nifty breaks out from this zone, the technical target is the depth of the pattern. That is approximately 10%. From 24,000 that takes us to 26,400, which is also near the previous 52-week high.

That is the first minimum target if we break out from here.

At the same time, small and midcaps are sitting close to the top of their ranges. If earnings do not continue to deliver, there can be supply coming in from those levels.

The Nifty Midcap vs Large Cap Cycle

When you look at the ratio of Nifty Midcap 400 to Nifty top 100, you see clear cyclicality.

Green regions show when small and midcaps outperform. Red regions show when large caps outperform. These cycles play out over three to six years.

The peak of this ratio was in June and the bottom was driven by COVID in March. The previous peak was December 2011 and the bottom came in June July 2023. About three to four years per full cycle.

If history is any guide, we are looking at the next two to three years favouring large caps over small caps. Not a crash in small caps. Just large caps performing even better.

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The Valuation Case

Now let me show you the numbers.

Look at the top 10 Nifty companies. Infosys, HDFC Bank, ICICI Bank, Kotak, LNT. All of them are trading below their 10-year trailing price to book averages or at average.

Small caps are still overpriced. The 5-year average PE for Nifty Small Cap is 26. We are currently at 33.

Midcaps are closer to fair value on a 5-year basis at around 30 PE. But on a 10-year basis, the average is 21 to 22 and we are above that.

Reversion to value happens in two ways. Either price corrects or earnings grow faster than price. Given that we are already in a time correction, the more likely path for small caps is that earnings rise but price does not move as fast as it did in the previous cycle.

When you look at the Nifty top 10 PE relative to Nifty 500, the top 10 is still relatively cheaper. Not the cheapest it has ever been. We saw the cheapest in 2020. But relatively cheaper than the broad market on the current horizon.

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FII Flows and Ownership

Two thirds of all FII flows go into large cap stocks. Always. Because large caps have the float and liquidity that foreign institutions need.

Right now FII ownership in top 10 stocks is at a historical low.

The top 10 stocks share of total India market cap is also at a historical low of 17%.

When FII flows return, whether through a better policy situation, a better tax situation, or just a better global macro setup, large caps are the first to benefit.

We do not know when. But we know where the money goes when it comes.

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The US Precedent

People say large caps cannot deliver outsized returns in India. Let me show you why that thinking is wrong.

Over the past two to three years in US. The Magnificent 7 led the entire rally. Market breadth was extremely narrow. All concentrated in mega cap large caps.

If it happened in the US in that kind of environment, it can happen in India. India has higher GDP growth. More population. More demand. A growing economy. The opportunity set is bigger.

The question is not whether large caps can deliver. The question is when and which ones.

The Large Cap Watch List

We went through all 100 stocks in the Nifty 100. We could only find 10 to 11 names that are setting up constructively right now.

That itself tells you something. We are early. The average RS percentile of our shortlist is 62. 36% are in stage 2. The rest are stage 2 candidates. Almost all from NBFC and BFSI sectors.

Data from WealthLab

Here is what we are watching:

Zydus Life. Big up move done. Now consolidating near the 50-day moving average. If it keeps respecting it, that is the entry zone.

Tata Capital. Long downtrend broken. Cup and handle forming. Further up move possible on breakout.

Chola Finance. Strong loan book. Double bottom broken out. In retest zone now. Entry possible with a stop below the base.

DLF. Recently cleared both the 50-day and 200-day. Small VCP at the base. Continuing to move up.

Bajaj Auto. Auto has been a growth engine for India for years. Long-term setup forming on the weekly chart.

Axis Bank. VCP contracting on the daily. Not fully set up yet. When it breaks the key levels it becomes a clear entry.

Bajaj Finance. Double bottom on the weekly after a long up move. Potential to set up for another leg.

ICICI Bank. Deep down move done. Now above all key moving averages. Not fully constructive for me yet but stays in watch list.

HDFC Bank. If Nifty Top 10 has to go up, HDFC Bank has to go up, not constructive right now but when it forms a base and breaks out it will be significant.

We own some of these. Our allocation is still small. We will add more when the tide actually turns. When they break out convincingly. When participation picks up.

A watch list is not a trade list. Keeping a watch list and executing every trade in it are very different things. The watch list exists so that when things set up, I do not have to scramble. I already know exactly what I am watching for.

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Having said that, we will close the case here for mean reversion and favouring the large caps vs the small and mid.

We will revisit it next month, or when the data changes in a way that it warrants an update.

The Lab LookBack : July 12th to July 19th

Now lets go to what happened in the market over the last week.

Market Breadth Last Week

Markets stayed in a fairly healthy zone. No extreme readings in the advanced decline oscillator. That is a good sign.

Extreme breadth days signal short-term reversals. When there are no extremes, the market is digesting normally and positions can be held with more confidence.

52-week highs and lows have been consistent since the April bottom. Mostly green shoots. Nothing alarming on the downside.

Stage 2 stocks are at around 14 to 16% on the one-year average. We are doing better than the last twelve months. But still below the long-term average and far from a secular bull run.

Moving average participation is healthy. Around 60 to 67% of stocks above their 200-day moving average. Not the 70 to 80% we saw in the June July rally last year but still solid.

70 to 80% is when you want to get aggressive and add positions quickly. It is also when you want to start moving closer to the exit door. Extremes on the upside are not the time to add. They are the time to take some off.

What Happened in the Markets Last Week

Nifty 500 was flat last week. Declines higher than advances overall. But the majority of advances came from the large cap space. Consistent with everything we just showed you.

200-day moving average breadth was the most resilient. Extended stocks are coming back to mean. Non-extended stocks are gaining strength.

Stage 2 pipeline this week. Bulk chemicals. Healthcare products with 5 out of 11 in stage 2. Generic drugs at 50% in stage 2. Auto ancillaries continuing to lead. NBFCs and FMCG gaining. Textiles holding.

What is losing momentum. Power coming out entirely. Defence losing points again. Wires and cables which gave a great three-month rally from March is now retreating. Public banks have gone from 7 to 8 names in stage 2 down to zero.

In sector rotation, jewellery, consumer goods, and footwear are moving into the leading quadrant. Contract manufacturing coming back. Food and agri picking up. BFSI continuing to gain with 24% of stocks in stage 2.

At the industry level pharma dominates. Healthcare products. Generic drugs. Pharma APIs. Pharma formulations. All holding or gaining strength. Kitchen appliances, TMT bars, and distribution supply chain are also in the leading quadrant.

The rotation from the old cycle leaders is very visible now. Power, defense, wires and cables stepping back. Pharma, BFSI, consumer goods stepping forward.

See the Market Recap

The Mean Reversion Tool on WealthLab

One last thing we want to show you.

We built a specific tool for this on WealthLab. Every table now has a mean reversion column. Turn it on from show columns. It shows you the distance of the current price from the 10-week, 30-week, and 40-week moving averages.

Our personal rule for short-term trades. We will not touch any stock more than 10% away from its 10-week moving average. The risk reward does not work. If our stop loss is 5 to 7% and the stock is already 10% extended, there is no room.

For long-term holdings we look at the 40-week column. If something is 20% above its 200-day moving average, we do not want it right now. When it comes back to a reasonable distance is when we get interested.

Use this tool to eliminate. In trading it is more important to know what you do not want than what you do.

Check out the Mean Reversion Tool

To Bring This All Together

Markets always come back to the mean. It is what the data shows time and again.

Right now the Nifty 50 to Small Cap ratio is near a long-term bottom. Mean reversion favors large caps from here. The Nifty 50 is forming a technical setup for a potential 10% move. Small and midcap valuations are still elevated. FII ownership in large caps is at a historical low. The SMID to Nifty 100 ratio is turning from an extreme.

None of this means small caps will not perform. If you have the skill to pick individual small cap names with strong earnings, there are opportunities. But if you are taking a broad cycle bet, the data is pointing in one direction.

We are selectively adding large caps. Watch list ready. Alerts set. Waiting for the breakouts to confirm.

The cycle has always been running. Right now it is turning in a direction most people are not looking.

Yours, Saksham

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"The sectors which led the last cycle are rarely the ones that lead the next."

This is episode 17 of the Lab Lookback.

Every week we go through market breadth, stage 2 momentum, sector rotation, and one deep dive into a specific sector that the data is pointing toward.

This week that sector is private banks and the data is making a very strong case.

But before we get there, let me take you through what happened in the markets over the last one week.

Stay with us.

Side Note: If you are someone who prefers to watch rather than read, you can follow the video version on the link below, do not forget to subscribe:

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Market Breadth: The Bottom Is Most Probably Behind Us

Since the April bottom, something has quietly changed in market breadth.

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Before April, the pattern was clear. A lot of red bars. A couple of green ones in between then more red then a few green again. The green bars you were seeing were not real strength. They were dead cat bounces during the correction.

Now the pattern has flipped. A lot of green bars. A couple of red ones spread out in between.

That is not a bounce. That is the market trying to go up. The worst is most probably behind us.

Now here is something specific about the advanced decline oscillator that we want you to pay attention to.

Every time the oscillator hits an extreme, whether extreme red or extreme green, the next day reverses. When it was extreme red during the correction, the next day was green. When it was extreme green on the way up, the next day pulled back.

What this tells you is that an extreme breadth day is actually a good time to initiate new positions. The second half of that extreme down day, or the open of the next morning, gives you cushion. You get in just as the reversal is setting up.

The reverse is also true. Do not initiate when breadth is extreme green. You are most likely buying the peak of a short-term move.

Stage 2 Stocks: Better, But Not a Raging Bull Market Yet

Stage 2 stocks as a percentage of the total market have picked up from the April lows. But they are still at 16%.

The long-term average is 27%. In 2024 when markets were peaking, this was running much higher. Since then it has come all the way down.

What does 16% tell you?

We are not in a raging bull market. We have recovered from the bottom but we are not in a broad secular run yet.

Anywhere above 27 to 28% is when you want to be much more aggressively bullish across the board. Until then, the market rewards selectivity over broad bets.

Breadth by Moving Averages: Narrow Strength, Not Broad

When you look at breadth by moving average, the broad breadth, that is stocks above the 200-day moving average, has pulled back by about 1.6% this week.

But the narrow breadth, stocks above the 50-day moving average, has improved.

What this means is that a select group of stocks is doing well. The broader market is not yet fully participating.

Last week we saw 155 new 52-week highs. This week it dropped to 104. The market remains bullish but it is not as broadly felt as what we saw in 2022, 2023, or 2024.

It continues to remain selective. That is the message.

Check out the Market Recap

Stage 2 Pipeline: What Entered Momentum This Week

When we look at what entered stage 2 this week, two industries stand out.

Hospitals. Seven out of 22 hospital stocks are now in stage 2 which is nearly one third of the industry entering momentum in a single week.

Sugar stocks. Four out of five sugar stocks came into stage 2 this week.

Something is happening in both of these. Worth exploring further.

Private banks continue to build. 14 out of 27 private banks are now in stage 2. That is more than 50% of the industry in momentum. We will go deep on this in a moment.

Textiles are also showing strength with one third of the industry now in stage 2.

Outside of these, not a lot has been green across the broader board this week. More red than green in the last seven days. The selectivity theme holds.

Sector Rotation: What Lost Strength, What Gained It

The sectors that led the last cycle, defense, wires and cables, power theme, global AI semiconductor plays, have started to lose relative strength.

Defense lost 7 RS points this week. Wires and cables lost 12 RS points. We discussed wires and cables back in March. It gave a great rally for three months. Now it has come back down.

The power theme is starting to diminish. The global AI semiconductor trade has started to unwind.

What is gaining?

Jewelry gaining strength. Education improving. BFSI picking up. Technology is coming back into play with IT product companies, not services, showing strength. Infosys is back in conversations.

FMCG has come into play. Food and agri sectors turning.

At the industry level, amines have gained a lot of strength. Animal healthcare picking up. Facility management gaining.

Pharma continues to be strong with APIs and CDMOs leading.

What has lost? Pumps have lost strength after a good run. Glass products, which gave strong moves, have now lost strength.

Hospitals and pharma across the board are seeing continued strength.

Ecomm platforms like Zomato, Nykaa, CarTrade, have started showing strength in the last week. Worth watching if the numbers are changing.

The picture is clear. Five out of the top seven sectors lost relative strength this week. The gains are coming from sectors that were previously at the bottom of the list.

Rotation is underway. The old leaders are stepping back. New ones are stepping forward.

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Sector Rotation Chart: Who Is Leading Right Now

When we look at the sector rotation tool, the leading quadrant is seeing new entrants.

Jewellery is coming into play. Consumer goods, that is FMCG, is moving in. Paper, packaging, and cement are improving.

At the industry level, kitchen appliances within consumer goods are gaining. Online platforms have come into play.

AMCs have taken a slight U-turn but we want to see them push higher. Wealth management has been improving over the last couple of weeks.

The rotation is not complete yet. But the direction is visible. Stay ahead of it.

Private Banks: The Deep Dive

Now let me take you through the sector we are most focused on right now.

Since the April 2nd, that is since the day Indian Markets bottomed, 13 private banks have entered stage 2. 11 NBFCs have also entered stage 2 in the same period.

In a sector that is already relatively small, 13 new names entering momentum says a lot.

When we look at the Nifty indexes sorted by 5-week RS change, Nifty Bank, Nifty Financial Services, and Nifty Private Banks are in the top three. Returns have not fully shown up yet but RS is leading.

That is how these moves work. RS builds first. Price follows.

The Charts Are Telling the Same Story

We went through the first 10 private bank charts this week. All of them are showing conducive structure.

IDBI Bank formed a cup and handle, gave a big breakout, and is now forming a flag. When this flag breaks, there is room for another leg up.

IndusInd Bank broke out after a long consolidation and is now trading above.

Check out the IndusInd Bank

The weekly chart has also started to give a breakout. Any pullback here becomes an entry.

Karur Vysya showing tight consolidation and VCP-type structures across the board.

J&K Bank was marked on stage 2 on 17th April moved to 191 from 130.

Suryoday Bank has also moved up.

We went through few charts. All of them show a conducive up move. When that many charts in one sector all look similar at the same time, something is happening at the sector level, not just the stock level.

This is very similar to what we saw in auto stocks in August 2025 right before the GST news came out. All the auto charts were forming great structures then the GST news dropped and Uno Minda gapped 6%, Mahindra TBS gapped 3 to 4% overnight.

The chart structure in private banks right now looks like that.

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The Fundamental Case for Private Banks

Technical data alone is not enough for us. We hold positions for 6 to 9 to 12 months. Fundamentals have to support it.

Here is what the data says on private banks right now.

Axis Bank, ICICI Bank, Kotak Mahindra Bank. All of them are trading below their 10-year trailing price to book averages. The average price to book for private banks is 2.92. In March it was 2.15. Right now it is around 2.05.

The business has improved. The valuations have not caught up. That is the definition of a mean reversion opportunity.

Let me walk you through the four data points.

NPAs are at the lowest since 1998. Lowest non-performing assets in three decades. The balance sheet risk that used to be the biggest concern in private banks is essentially gone.

ROE and ROA are at the top of the cycle. ROE at 12% and ROA at 1.6% for the sector. Operational capacity is strong. Management quality is reflecting in numbers.

Valuations are at minus 2 standard deviations. We are trading much below fair value for private banks. That is a lot of room for mean reversion if the business stays strong, and the business is staying strong.

Loan growth is at 1.7 times nominal GDP. We saw the same in 2023. The peak in prior cycles has been around 2 to 2.1 times. There is still room to go.

When the business is healthy and the valuation remains cheap, that is where you want to be.

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Public Banks vs Private Banks: The Rotation Within BFSI

One more thing worth noting.

Public banks rallied hard for the past couple of years. Loan growth in public banks was running at 16% while private banks were lagging at 12 to 13%.

But now private banks have picked up their loan growth to close to 15%. Deposit growth in private banks, which was deteriorating, has also recovered and reclaimed strength.

Public banks are starting to lose steam. Private banks are starting to gain it.

Money is rotating within BFSI from public to private. This has happened before. In 2017, 2018, 2019, private banks were overheated. Post COVID the reverse happened and public banks led. Now the cycle is turning back.

To Bring This All Together

The market breadth picture is improving. The bottom is most probably behind us but we are still at 16% stage 2 stocks. Not a broad bull market yet.

The rotation is clear. Defense, wires and cables, power are stepping back. BFSI, FMCG, pharma, IT products are stepping forward.

Private banks are showing up everywhere. In the stage 2 pipeline. In the RS rankings. In the chart structures. In the fundamental data.

The business is strong. The valuations are cheap. The technicals are setting up.

We need to make money in this lifetime. The data is pointing at private banks right now.

Watch it closely.

Yours,

Saksham Ahuja

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"Price is not the story. Price is the result of the story."

This is a question I have been getting a lot.

Why has Nifty behaved this way? Why have the markets been so erratic over the past two years? And what does the outlook look like from here?

We are going to take you through the data. Not the noise. Not the headlines. The actual numbers behind why the market behaved the way it did.

Stay with us.

Side Note: If you are someone who prefers to watch rather than read, you can follow the video version on the link below, do not forget to subscribe:

First, Why Does a Stock Move?

Before we talk about Nifty, we need to agree on one thing.

Why does a stock go up?

Is it demand and supply? Is it a breakout? Is it a supply squeeze like what happened with GameStop or silver? Is it a CapEx cycle, a corporate action, or a trigger?

All of these are valid. But they are all subsets of one thing.

Earnings.

That is it. That is the only reason a stock goes up over the long run.

When there is a supply squeeze, it is an expectation of higher profitability. When there is a breakout, institutions are betting on earnings growing. When demand and supply imbalances happen, it is because people believe the long-term cash flows of the business are going to be worth more than what the balance sheet shows today.

Every trigger, every corporate action, every CapEx cycle. All of it leads back to one question. Will this company earn more?

Two Real Examples

Take Adani Power. It was going flat for about a year. Then the March quarter came in with a 52% increase in earnings per share. No significant revenue jump. But EPS expanded because costs reduced, margins improved, cash flows increased.

What happened to the price? It moved.

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Now take Manglam Worldwide, a steel producer. Quarter over quarter it delivered 40% plus increase in EPS. Revenue growing at 30%. Operating margins expanding. The stock went up 120%.

Here is what is happening underneath.

First quarter delivers strong numbers. People gain confidence that the company can keep growing. Second quarter confirms it with 75% earnings growth. Third quarter comes in at 81%. Now there is a hardcore belief forming. The company is growing fast. The market reprices it higher.

That is what causes breakouts. That is what brings in traders, positional investors, swing traders, everyone together. Earnings growth is the fuel.

How Does Earnings Actually Grow?

There are only two ways.

First is volume growth. More goods sold. Revenue goes up. Top line grows. Bottom line grows.

Second is margin expansion. You sell the same Rs 100 of product but instead of making Rs 20 in net profit you are now making Rs 25 or Rs 30. Same revenue, more profit per unit.

That is it. Two levers. Volume growth and margin expansion.

Every time you hear someone asking why Adani went up, why a particular stock ran, you are really asking which of these two happened and what triggered it.

Now this matters because if either of these two is non-existent, earnings are not growing. And if earnings are not growing, the market has no reason to go up.

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Now Apply This to Nifty

An index is just a collection of stocks. When the earnings of those stocks grow, the index goes up.

So Nifty goes up when corporate India’s earnings grow. Same two levers. Volume growth or margin expansion.

Here is where it gets interesting.

The Margin Story: Almost No Room Left

Look at the net profit margin of Nifty 500 from FY02 to FY25.

Margins have historically peaked at around 10%. That is the structural ceiling for corporate India on average. It happened before the 2008 crisis. That is when we had a great bull run.

Post COVID, margins recovered and climbed back to 8 to 9%.

We are already close to the peak. The room for margin expansion is low.

And in FY25, margins started cooling. They are cyclical. They will go up and come down and go up again. But right now, the margin expansion story for corporate India is largely played out.

That is lever one, almost exhausted.

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The Revenue Story: Below the Long-Term Average

Now look at revenue growth.

Current revenue growth for corporate India is at 8.2%. The 10-year average is 9.5%. The 5-year average from FY21 to FY24 was 12.3%.

In FY22 and FY23, we saw revenue growth of 27% and 23%. That is what caused the great bull run across those two years. Revenue was exploding. Margins were still expanding. Profit after tax was growing at 51% and 43% driven by pent-up demand post COVID.

But right now revenue growth is at 8.2%. That puts us in the bottom 17 percentile of our own history.

Both levers are weak at the same time. Margins near peak and starting to cool. Revenue growth below the long-term average.

That is why earnings did not deliver. And that is exactly why Nifty did not go anywhere.

What Actually Happened in FY25 and FY26?

In FY22 and FY23 we delivered exceptional results. We saw 27% and 23% revenue growth. Profit after tax was growing at extraordinary rates.

Markets got excited. Nifty was trading at 24 to 25 times PE. Midcaps were trading at 41 to 42 times. Small caps at 45 to 46 times.

The market priced in the assumption that this growth would continue year on year.

It did not.

Revenue growth started dropping from FY24 onwards. Margins had already started to plateau. Earnings did not deliver what the market had priced in.

So instead of a price correction, we got a time correction.

The price stayed elevated. Earnings needed time to catch up. The market went sideways and waited. That is exactly what we experienced.

Every up move in that period came just before or during the quarterly results season. People kept hoping that this would be the quarter earnings would finally catch up to the price. It kept not happening.

Why Did the Market Not Fall More?

A fair question.

The answer is domestic flows. SIPs and DIIs kept pumping money into the market. That prevented a deep price correction.

But flows cannot create earnings. They can only slow the fall. They cannot drive the next bull run.

The market failed to rise because the fundamental fuel was not there.

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Where Things Stand Right Now?

The good news is that things have started to change.

Look at the PE versus topline growth chart. In FY16 to FY17 the gap between PE and revenue growth was the widest. What followed was a period of zero returns in the broader market until revenue growth caught up in FY19 to FY20.

We are going through something similar now. PE has started correcting. Revenue growth is starting to pick up. The two lines are moving toward an equilibrium again.

High frequency indicators are also turning.

Credit to industry bottomed in November 2025 and has been rising since. Cement production picking up. Manufacturing output showing uptick. Capital goods seeing good demand. IIP numbers for mining and manufacturing both improving.

Consumer goods are still lagging but have started to turn.

Where the Strength Is Coming From?

Three pockets are showing genuine earnings momentum right now.

Pharma is seeing a 3-year earnings growth of 22.8%. CDMOs, APIs, generic drugs. This is not a rotation story. It is a fundamentals story backed by consistent earnings delivery.

Consumer businesses are showing strong ROE at 26.2%. Earnings growth is not exceptional yet but any consumption trigger in the economy will lead to a strong boost here. FMCG as an index has moved 4 to 5% in just the last two weeks.

Private banks are trading at 1.7 times price to book against a long-term average of 3.2 times. ROE is at 13.6% against a corporate India average of 11 to 12%. Earnings growth of 16.5% being delivered year on year. Strong balance sheets. Credit to industry is starting to pick up.

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The market is beginning to price this in. Market breadth has improved significantly. 52-week lows have almost disappeared from the breadth chart since April. Stocks above the 200-day moving average have gone from roughly 40% to 57% in the last month.

But. We are not in a secular bull run yet.

Stage 2 stocks as a percentage of the total market are at 19%. A secular bull run typically needs this above 30%. We were above 30% in 2021 and again in 2023, both of which delivered multi-year bull runs.

We are in the early stages. The bull run is selective. It will stay selective until the earnings gap closes.

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Large Caps or Small and MidCaps?

One more thing worth covering.

Large caps are trading close to fair value on a long-term basis. Trailing PB is at 3.4 against a long-term average of 3.6. Market cap to GDP and forward PE are also near their historical averages.

Small and midcaps are still expensive. Trailing PB is well above long-term averages. Forward PE is 30 to 40% above historical averages. And 5-year trailing returns of SMIDs at 17% are well above the historical 13%.

This does not mean small caps cannot deliver. If you have the skill to pick individual stocks and generate alpha, small caps have companies with great growth at corrected valuations.

But if you are taking a broad sectoral bet, large caps offer more macroeconomic tailwind right now. More wind behind your back.

The best position, if you can manage it, is alpha plus beta. Stock picking skill inside a large cap index that has sectoral tailwinds. That combination is where supernormal returns come from.

Market Breadth: What the Data Is Actually Saying

Now here is where it gets interesting.

Until April, we were seeing a lot of red bars in 52-week lows. Broad-based weakness. Since then, barely any red bars. Green shoots are appearing at the top.

Market breadth is improving. A broad-based correction looks off the table for now.

Stocks above the 200-day moving average have moved to 57.2%. That is up 18 percentage points in just the last month. Stocks above the 100-day moving average have also improved by a similar margin.

But here is the honest picture.

Stage 2 stocks as a percentage of the total market are at 19%.

In 2021 this was at 80%. In 2023 it again went above 80%. A secular bull run typically needs this number above 30% and sustaining.

We are not in a secular bull run. We are in the early stages of one. The bull run stays selective until the earnings gap closes fully.

What this means practically is that you cannot just buy the index and expect broad-based momentum to carry you. You have to be stock specific. This is a stock picker’s market right now.

Market Cap Rotation: Where Is the Cycle Sitting?

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Now here is the third signal we track. The Nifty MidSmall 400 divided by Nifty 100 ratio.

When this ratio goes up, SMIDs are outperforming large caps. When it comes down, large caps are taking over.

This ratio is cyclical. In 2018 it went under for about two to three years. Then it recovered and ran hard. It typically peaks around 0.6 to 0.7.

Right now we are at 0.8. We are at the top of this cycle.

Now here is the thing. When this ratio corrects from the top, it can correct in two ways. Either the numerator falls, meaning SMIDs fall. Or the denominator rises, meaning large caps go up.

Given everything we covered, the denominator going up is the more likely path. Large caps have the earnings tailwind. Private banks, pharma, consumer goods. The macro is setting up for large caps to move.

What Happened in the Markets Last Week?

All the below data is from WealthLab Analytics, Click Here to visit

From 25th June to 3rd July, Nifty moved up 0.81%.

Breadth in the last one week improved.

Breadth in the last one month improved by a large margin. Overall breadth up 15%. Stocks above the 100-day moving average up 18%.

One thing that has not moved as much is the number of stocks in momentum. Relative strength is increasing but momentum is not increasing at the same pace. This confirms what the stage 2 data is telling us. It stays a stock picker’s market.

Which Sectors and Industries Are Moving?

When we look at stage 2 pipeline by industry, the top name is Pharma API. Six out of 49 pharma API stocks have entered momentum in the last week. That is 50% of the industry in momentum. NBFCs have seen pickup. Auto ancillaries are moving. Bulk chemicals. Generic drugs.

Healthcare and pharma are showing up everywhere. In the earnings data. In the breadth data. In the stage 2 pipeline. That is not a coincidence.

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When we look at sector rotation by relative strength growth this week versus last week, two standouts.

Contract manufacturing gained 8.7 points in RS. Healthcare is already at RS 59 and picked up 2 more points. Auto also gaining strength.

Consumer goods gained 6.7 points.

Check the Relative Strength gain of all Industries and themes at WealthLab.in/weekly-recap

In industries, glass products picked up 8.1 RS points. Engineered goods 7.8 points.

Wealth managers and AMCs both gaining 13 to 14 RS points in the last week.

AMCs are worth watching closely. Three out of six stocks in the AMC space are now in stage 2 or stage 2 candidates. Wealth management as an industry has moved from lagging to leading on the sector rotation chart.

When you look at the rotation chart itself, AMCs have traveled all the way from the lagging quadrant to now sitting in the leading quadrant.

Wealth management has done the same.

A rotation is underway. It is not broad-based yet. But the direction is clear.

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To Bring This All Together

Nifty did not perform because corporate India’s two earnings levers, margin expansion and revenue growth, both weakened at the same time.

Margins peaked near 10% and started cooling in FY25. Revenue growth fell to 8.2%, the bottom 17 percentile of our history.

The market had priced in a continuation of the FY22 to FY23 earnings boom. Reality did not deliver. So instead of a crash, we got a time correction. Nifty went sideways and waited for earnings to catch up.

That gap is now beginning to close. High frequency indicators are turning. Revenue growth is picking up. Pharma, consumer businesses, and private banks are showing genuine earnings strength.

Market breadth is improving. The rotation is beginning. But stage 2 stocks are still at 19% of the market. We are early. Not mid-cycle.

This is not the moment to go broad and hope the tide carries you. It is the moment to be selective, stay in sectors with earnings tailwinds, and let the cycle do its work.

The cycle has always been running. It just paused long enough that most people forgot it was still there.

Yours, Saksham

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“Price on a daily basis is just noise. 
It does not tell you what the trend is or how market participants are feeling.”
— Saksham Ahuja

This is the fifth episode of the Technical Analysis Essentials series. Second last one before we bring everything together into one strategy you can trade yourself.

Today we talk about:

• Moving averages

• Why they matter?

• Why price respects them?

• Why they show up in almost every trading strategy you have ever come across?

In the last few episodes we covered the basics, Dow theory, trends, support and resistance, breakouts, and how to avoid fake breakouts. Today we add another tool to that toolkit.

Side Note: If you are someone who prefers to watch rather than read, you can follow the video version on the link below, do not forget to subscribe:

What Is a Moving Average?

Price moves in every direction every single day. One day it is down 5%. Next day it is up 2%. The market reacts to emotions, sentiment, news, geopolitics. All of it.

But what is the reality behind price? What should you actually be focused on if you are a swing trader, positional trader, or investor?

Day to day price movement is noise. Just noise. A moving average smoothens that noise out. It removes the volatility and shows you the real trend underneath.

Look at a raw price chart. Up and down, erratic, volatile. Now smoothen it over a period and you see the actual story. The price was in an uptrend. But the moving average has started cutting above it. That tells you something important. The speed of the uptrend is slowing. Optimism that was once high is now cooling off.

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The Psychology Behind the Average

When we talk about a 50-day moving average, we are talking about the average price the stock has traded at over the last 50 days.

If the stock has been moving between Rs 100 and Rs 120 for 50 days, the moving average tells you where the average buyer is sitting.

So why does that matter?

Because that is exactly why price respects the moving average.

If the market is trading above the 50-day moving average, the average buyer over the last 50 days is in profit. He is comfortable. He has no urgency to sell.

And every time price comes back down to that moving average, he is at breakeven and will want to add more, as long as he still believes in the thesis.

Think about it like this. If you believe tomatoes at Rs 100 are a good buy, and the price moves to Rs 110 and comes back to Rs 100, it is still a good buy for you. You will buy again at the average price.

When price is above the moving average, the average holder is happy. When it touches the average, he sees it as still fair value and adds more. That is what makes the moving average act as support.

A 200-day moving average works the same way, just over a longer window of holders.

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Maha Bank: Watching the Average in Action

Let’s go to the chart of Maha Bank.

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Three lines plotted here. The green line is the 50-day moving average. The yellow line is the 150-day. The red line is the 200-day.

Every time price touches the yellow line, it starts to move up. That tells you something specific. The 150-day buyers are getting an average entry price, and they want to add more.

As the trend progresses, you will notice the price starts respecting the 50-day moving average too. Touch, bounce, move up. Again.

Here is the pattern. As a trend matures, more and more people are sitting on that moving average as their entry price. So the respect for that level only grows stronger over time.

National Aluminium: Until It Breaks

Same story, different stock. National Aluminium tracked its 50-day moving average for a long stretch. Touch, bounce. Touch, bounce. Again and again.

Then one day, it broke.

Every prior touch meant buyers from the last 50 days were still optimistic and wanted in more. The eventual break tells you that optimism finally ran out.

When the Moving Average Flips Into Resistance

Now the other side of this.

When price starts trading below the moving average, the story flips. Pullbacks toward the average no longer attract buyers. They attract sellers.

Why? Because the average holder over the past days is now in losses. Every time price climbs back to breakeven, what does a losing holder want to do? Get out.

That creates supply. That creates sell orders. And price falls back again.

Infosys: A Moving Average Acting as a Ceiling

Look at Infosys on the daily chart. The price has been trading below its 50-day moving average for a stretch and has been correcting ever since.

Every time price rallies up to the 50-day moving average, the people who bought 50 days ago are now at breakeven. They do not want this position anymore. They sell. Price falls. It rallies again to the average. Same story. They sell again.

This is the moving average working as resistance instead of support.

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How to Actually Use This: Stop-Loss

Let’s put the theory to work.

Say you already hold a position and you are deciding where your stop-loss should sit.

Ask yourself this. If price falls below the moving average, what does that tell you? That the average holder is now in losses.

Why would you want to keep holding a stock where the average holder is under losses? Because if the broader holder base is in loss, every up move just gets sold into. Your stock will struggle to appreciate from there.

So if you are holding a position and price convincingly closes below your chosen moving average, that is a clear signal. Buyer psychology has shifted. It may be a sign your thesis is breaking. Get out before everyone else figures it out too.

How to Actually Use This: Entries

There are two ways to use moving averages as an entry tool.

One. Buy the pullback.

Take a look at MahaBank chart. Price kept consolidating back into the 150-day moving average. Each touch was a potential entry. Then it happened again. And again. Every pullback into a respected moving average becomes a fresh entry opportunity.

Two. Buy the convergence.

Take the chart of BSE. The uptrend started around July 2024, and the moving averages extended far apart from price initially.

But look closer. At certain points, all three moving averages start to converge. They come together.

When that convergence happens and price starts moving up while respecting it, that is a strong entry signal. Why? Because anyone who bought over the last 50, 150, or 200 days is now sitting near breakeven, together, at the same time. If price moves up from there, all of them gain confidence at once. They all want to buy more. That is a lot of fuel hitting the rally simultaneously.

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Which Moving Average Should You Actually Use?

• If you are a short-term trader, the 50-day moving average works well.

• If you are a long-term investor who wants to ride the full trend, the 200-day moving average is your key level.

A simple rule to live by. Hold as long as price stays above the 200-day moving average. Sell when it convincingly trades below it.

Bringing It Together

A moving average is not just a line on a chart. It is the average price the holder base paid to get in.

Above it, holders are happy and add more. Below it, holders are scared and want out.

That single idea explains why moving averages act as support, why they act as resistance, why convergence creates fuel for a rally, and why a clean break below one is often your best stop-loss signal.

What’s Next?

In the next video, we bring everything from this entire series together into one tradeable strategy. See you there.

Yours, Saksham

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"Support and Resistance Levels are the Foundation of Technical Analysis."
— Nial Fuller

If you know what a support and a resistance is, and you combine it with a trend, you are already halfway there to start your trading journey.

Technical Analysis Essentials is a series we are doing to refresh our readers and users of the basic concepts of technicals before they dive in into trading and investing into them.

In episode three of the Technical Analysis Essentials Course with WealthLab, we go through supports and resistances. We will talk about:

• How to draw them (basic)

• Some misunderstood rules (important)

• Some commonly accepted myths (very important)

So grab your coffee, and lets get started.

Side Note: If you are someone who prefers to watch rather than read, you can follow the video version on the link below, do not forget to subscribe:

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Supports and resistances are not just lines that are drawn on the screen because there is a lot more that goes into it. People have seen screens where other people have drawn lines and they still end up taking the wrong trades.

Today we change that.

What Is Happening Behind the Candlesticks?

Before we go to the real charts and see what support and resistance is and how we draw them, let’s get a broad understanding of what is happening behind the screen.

So support and resistance is basically a zone of memory. That is it.

It is a zone where buyers and sellers get active.

Suppose that there is a business and it is listed on the market and it is trading at Rs. 2,000. Every time it hits Rs. 2,000 it starts to fall down and comes to Rs. 1,500. Every time it goes to Rs. 1,500 it starts to go up and goes back to Rs. 2,000.

So it is trading between Rs. 1,500 and Rs. 2,000.

At Rs. 1,500, the buyers get active. They feel that the equity or the business is good to buy at Rs. 1,500 and at Rs. 2,000, the sellers feel that now it is overvalued so they need to sell their stock and they start to sell it.

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Fundamental investors, value investors, momentum traders, intraday traders, short term traders. They all feel that at a particular price the stock is attractive and they want to buy it and at a particular price, the stock has made a lot of move and is not attractive anymore and they want to sell it.

The price does not know that Rs. 2,000 is special. It is because people have made the decision to buy, sell, or hold at that particular price.

It is a zone of memory.

Every time the stock hits Rs. 2,000, it is in mind memory, that now it has become expensive, and we will start selling it and when everyone starts to believe in that one particular memory, then everyone starts to sell it. And it becomes a supply zone. And in other words it becomes a resistance.

Do not get confused with these words. We will go through both of them one by one, and also the charts so that you can understand this very clearly.

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Identifying Support Zones

We are on the page of the stock called BioCon. Now let’s go to the candlestick chart.

Now over here you can see the exact same thing that I spoke to you about.

When the price is at Rs. 340, you see that there are people who are coming in to buy. There are people who are coming in to buy. This is where people feel that the stock is attractive and they are providing support to the stock price. This becomes a support zone because people are coming to buy in at this price.

This is what a support is and this is how it is drawn. When there are a couple of price points where the price starts to move up, then it is called a support zone because a lot of people come in here to provide support to the price and start buying it.

Identifying Resistance Zones

A resistance would be a price point where people start to sell the stock.

If you just look at chart, people have started to sell at Rs.400.

Sell is where the price is coming down. So that means that around this area becomes the resistance. That the price is being resisted at this point. This area becomes the resistance zone of this stock.

So that is how we identify the supports and resistance.

And now we will go on to how you actually trade or form a strategy to trade through these supports and resistances.

The Sideways Trend Strategy: Rs. 340 to Rs. 400

If we zoom out through this particular chart, we will see that this particular idea of price support coming in and the people starting to buy, has been existent since July 2025 and every time it comes to a price of Rs. 400, it is sold. People start trying to sell it.

This is not an uptrend because there is no higher high and higher low structure. This is not a downtrend because there is no lower high and lower low structure.

So it is a sideways trend.

We can clearly see that every time it touches Rs. 340 people buy. Every time it touches Rs. 400 people sell.

This will incorporate a trading strategy where you can just start buying when the price hits Rs. 340, Rs. 350 and you can start selling when the price hits Rs. 400.

Now it is not necessary that the price stays flat all the time.

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Upward-Sloping Support Trendlines

If we further zoom out and you will see that the price is trending upwards. It is forming higher high, higher low, higher high, higher low structure over here.

So how do you trade over here?

Now supports do not necessarily have to be sideways or flat. They can always be increasing, that is sloping upwards.

If we try to find points where buyers have come in to support. You have to find places where the price has started to go up.

Now if we connect all of these dots together into a line, will we get a support line for this stock.

We do get a support line for this stock. And this is exactly what defines the support. When we have three or more points at which the price starts to go up, it becomes a support trendline for that stock.

Forming a trading strategy with upward sloping trendlines, you have to find three points where the price has started to move up and you have to connect those three points to make an upward sloping trendline and this tells you that the stock is in an uptrend and you can easily buy it when the price starts to come down back to the trendline. Because over here people will come to provide support to the stock.

The rule for trend traders: Find three points where price started moving up. Connect them. Buy when price pulls back to that line.

Upward-Sloping Resistance Trendlines

And similarly there can be an upward sloping resistance line also which you can draw.

So resistance is basically where the price starts to fall, where sellers come in. Now if we have to mark the areas where price is starting to fall, you can say that it is falling here.

So you can connect all these three and form an upward sloping resistance line.

This becomes your strategy. That every time the price starts to connect on the resistance, you start to sell it but you have to connect at least three points and not any lesser.

Downward-Sloping Trendlines

There is a downward trend and you can simply just draw a downward sloping trendline which is the resistance. As well as you can draw the support in this downward slope also.

This is how supports and resistances are drawn across technical analysis. And this forms the base of trading using technical charts.

The Rules

Rule 1: Reaction Strength Is Greater Than Touch Count

Number one is that reaction strength is greater than the touch count.

A level is strong because of how price reacts to it. Not because how often it is touched.

A lot of people will say that because there are one, two, three, four, five touch points, so this is a very important level.

No.

You have to see how the price is reacting after the touch point. And the higher and quicker and faster the reaction, the more important that touch point is. That is what makes it strong.

Rule 2: Old Resistance Becomes New Support After a Break and a Retest

So another rule which is very important is that old resistance becomes new support after a break and a retest. Once the price has broken a level, the trapped sellers become buyers. We do not have to go into the technicals of it. But this is what happens. A support trendline can turn into resistance and vice versa.

Rule 3: It Is Always Zones. Not Particular Lines.

It is not always Rs. 400, or at Rs. 400 it will start to fall. It is that in this zone, in this zone sellers become active. In this particular zone sellers become active. Not at particular Rs. 400 price.

Basically in this particular zone sellers are active. So between Rs. 400 to Rs. 440, in this 10% region, you have to be cautious if you are holding the stock.

In the zone at the bottom, buyers become active. It will not always be that at exact Rs. 340 buyers will come in, or at exact Rs. 350 buyers will come in. In this zone people start to find value in the stock and start to buying it more.

And that is why if someone is telling you that exactly buy at Rs. 340 and put your stop loss at Rs. 340, or at Rs. 350, it will never work out. Because the market has a mind of its own and a particular price is not what defines support or resistance. It is always a particular zone that defines a support or a resistance in trading.

So it is always a range and not an exact price.

Three Myths

Myth 1: Buy Exactly at Support. Sell Exactly at Resistance.

Just now we saw that supports and resistances are zones and not prices.

Everyone knows in the market, people can see that this is a support price, this is a resistance price. So there will be a lot of tussle happening over there. A lot of people will come in and it becomes a range of prices, not just a particular exact price.

That is why the first thing that you have to remember is that you do not have to buy exactly at support and sell exactly at resistance. Because you have to wait for confirmation.

You have to wait for the price to start moving up from the support zone and not just blindly trust the support zone. You have to wait for it to start moving up and wait for a confirmation. Maybe a volume spike, maybe a candle close back inside the zone.

But you cannot just take the price for the level for it. In that case your stop loss might get hit.

Myth 2: Any Support and Resistance on Any Timeframe Is Tradeable.

Any support and resistance on any timeframe is tradeable. This is not true.

For people who are trying to trade trends, and all of us here are trying to trade the trend, that is, if the market is going up, then I want to buy the stock. If the stock is going down, then I do not want to buy the stock. I want to sell the stock.

In trends, only support and resistance on a broader timeframe, that is one day or above, counts.

Do not look at those people who give you 5 minutes, 10 minutes, 15 minutes levels that this is where the price will reverse. No one knows where the price will reverse.

But on a broader level, that is one day, one week, one month, at least there are a lot of people who are coming in and trying to buy. In five minutes, not as many people will come.

So higher timeframe levels are watched by bigger capital. Lower timeframe levels are mostly noise for trend traders.

You do not have to look at lower timeframe counts. You have to look at daily and above timeframes so that your trade makes sense.

If it does not show on daily, it does not make the trade. Because on 15 minute level it can form something but on one day, one day will always take priority over the shorter timeframe.

Myth 3: More Touches Is Equal to a Stronger Level.

More touches is equal to a stronger level. Which we saw earlier also.

More touches is not what defines a stronger level. The reaction to those touches is what defines the strong level.

Every time it is being touched, see the reaction is lower. The reaction is lower. So it is weakening the support, not strengthening it. But if the reaction would have been that after the second touch it went even higher, after the third touch it went even higher, then that would mean that this support is very important.

Every time the price tests the support it is eating the resisting order. It is eating everyone else who wants to buy at this price. At one point all the buyers will get exhausted and only sellers will be present at this point and the price will start to move down.

So buyers will start to evaporate and there will be lesser buy orders, lesser demand at that price, and more sellers will come in to play.

More touches do not make a stronger level. More better reaction makes it a stronger level.

This was three important rules through which you can draw trendlines. And three important myths that you need to remember when you are drawing these trends or talking about trends with someone else.

What Is Next?

In the next article of the Technical Analysis Course, we will talk about breakout and essentially forming a strategy of everything that you have learned so that you can rely on your own and you make a clear understanding of technical analysis.

Yours, Saksham.

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"The market is never wrong. Opinions often are." — Jesse Livermore

A lot of us turn a profit into a loss not because we are trading a bad strategy, but because we are trading in the wrong direction.

This is the second episode of the Technical Analysis Series at WealthLab. In this piece, we go through a primer on Dow Theory and what trends actually are, so that you never short an uptrend, you never go long a downtrend, and you know exactly what to do and where to do it.

Side Note: If you are someone who prefers to watch rather than read, you can follow the video version on the link below, do not forget to subscribe:

Before we get into trends and structures, look at the chart and decide for yourself, in the comments, whether it is in an uptrend or a downtrend.

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What Is a Trend?

Markets move in waves, not straight lines. A trend is simply the general direction price is taking, measured by the pattern it is following.

There are two kinds of structures a trending market can follow.

The first is a higher-high, higher-low structure. Price moves up by some points, comes down by some points, moves up again and makes a high that is higher than the previous high, then comes down and makes a low that is higher than the previous low. Every high is higher than the previous high. Every low is higher than the previous low. This is a staircase moving up. This is called an uptrend.

The second is a lower-high, lower-low structure. There is a high, then a low, then the next high is lower than the previous high, and the next low is lower than the previous low. This is a staircase moving down. This is called a downtrend.

This comes down to demand and supply. When demand is higher than supply, more people want to buy than sell, and price gets pushed up. When supply is greater than demand, more people want to sell than buy, and price keeps drifting lower as sellers just want to get rid of what they hold.

Who Came Up With This?

This theory of trends is called Dow Theory, and it came from a man named Charles H. Dow.

Charles Dow was not a trader. He was a journalist. He co-founded Dow Jones & Company and, in 1896, created the Dow Jones Industrial Average. His work was never about predicting markets. It was about observing how they actually behaved.

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Tenet One: The Market Discounts Everything

The first rule of Dow Theory is that the market discounts everything. All known information is already in the price.

For example. On 15th August last year, the Prime Minister announced a GST cut, specifically impacting the auto sector. Take TVS Motors and rewind two days, to 13th August.

By 13th August, TVS Motors was already sitting at a 52-week high. The GST cut had not been announced. But price had already rallied from 1st August onward and made a new high.

Nobody outside a small circle knew the GST cut was coming. The price already did.

That’s the first tenet in practice. Everything is already there, in the price. Learn to read it, and you start generating better returns.

Tenet Two: Every Trend Has Three Phases

There are three phases to every market move: accumulation, public participation, and distribution. This one matters, so read it carefully.

Accumulation is where smart money enters. This is where domestic and institutional buyers, the people with information, start quietly building positions. Price still looks flat or boring. Volume is low. The crowd has lost interest. That's precisely when smart money is accumulating.

Public Participation is where the crowd shows up. People realise the move is real and want in.

Take gold, and the biggest rally that played out through 2025 into 2026.

But the accumulation phase for gold actually started back in 2022–23. The crowd rushed in much later, once price broke out, headlines arrived, and word spread about central banks buying gold amid geopolitical conflict. That's when most people entered. Comfortable, but late.

Distribution is the third phase, where smart money quietly exits. Price is at an all-time high. Retail is still buying. The top is being sold to them. You can see this same pattern play out again in gold’s chart, where retail participation peaked right as the smart money that accumulated early started stepping away.

There's a useful way to label these three stages. Stage one is accumulation, where value investors come in. Stage two is when the trend becomes active and traders come in, this is where most of you reading this are. Stage three is where the late entrants pile in, and you do not want to be a part of that stage.

At WealthLab, we track stage two stocks specifically, the names that have moved out of accumulation and are entering the active trend phase, ready to rally.

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Tenet Three: Trends Are Confirmed by Volume

Volume is the conviction behind a move.

When smart money is accumulating, very few people are involved, and volumes stay low. Once the news breaks and the public starts rushing in, volume picks up alongside the rising trend. Usually, the highest volume shows up near the top, when every buyer has already become a buyer and there’s barely a seller left.

If price keeps climbing while volume starts shrinking, be careful. That's usually when smart money has begun selling. A smart trader wants to be part of the rising-price, rising-volume phase, stage two, not the rising-price, falling-volume phase. That second one is exactly where most people get trapped.

Tenet Four: Trends Persist Until Reversed

If a trend has been running for a while, it continues to persist until something actually breaks it.

A lot of the time, price keeps moving up, and we get scared. It has run too far, it has gone up too much, surely it has to turn now. Do not fall into that thinking. Trends, especially primary trends, do not reverse easily.

A reversal, a real change from an uptrend to a downtrend, requires a confirmed break in the sequence of higher highs and higher lows. Not a feeling. Not a hunch that the stock should go down now.

The trend is innocent until proven guilty. Stick with it for as long as the structure allows, because most traders exit too early.

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Back to Union Bank: Primary vs Secondary

Remember Union Bank from the start. Let's actually read this chart.

Zoomed into this section, this looks like a lower-high, lower-low structure. One high, then a lower high, then a lower high again. One low, then a lower low, then a lower low again. On this view, it looks like a downtrend.

Now zoom out. Looked at over the full period, this is clearly a higher-high, higher-low structure. Every high made is higher than the previous high. Every low made is higher than the previous low.

Someone holding the stock during that earlier zoomed-in section might have convinced themselves the trend had turned and sold out. But look closely: the previous low was never actually broken. The structure was never broken. There was no confirmed reversal.

This is the difference between a primary trend and a secondary trend.

The Tide and the Wave

Most people exit during the wave and miss the entire tide. What you want to do as a trader is stick with the tide, the primary trend, and ignore the waves, the secondary trends, happening inside it.

The primary trend lasts months or years. The secondary trend lasts days or weeks. The primary trend is the move that actually matters. The secondary trends inside it can look like reversals but they are usually not.

The Framework: Zoom Out, Then Zoom In

Step one: zoom out and identify the primary trend. Go to the weekly or monthly chart. Ask what the tide is doing, not the wave. Is it a higher-high, higher-low structure, or a lower-high, lower-low structure?

Step two: zoom in and find your entry within that primary trend. Once the broader direction is clear, go to a smaller timeframe and look for an entry biased in that same direction. If the primary trend is up, look for upside-biased entries. Never trade against the tide.

What's Next

The next layer in this series covers where price is actually likely to turn: support and resistance. We'll also bust a few myths there, the same way we did with trend structure here.

Yours, Saksham

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"Markets are rarely that simple. The biggest perk is being able to figure out the industry leaders and the stocks within them with relative ease.

Find the right sector, the right industry, the right stock and follow where the momentum is flowing."

Every now and then, I get asked: How do I use WealthLab? How do I actually find swing trades using this platform?

In this piece I am going to tell you exactly that.

Here’s the breakdown. We walk through how to screen stocks using relative strength. We’ll see which sectors, industries, and stocks have momentum right now. Second half, we talk about the market environment. What’s happening with breadth. What phase we’re in. Then we take your questions.

Without further ado, let’s get started.

Side Note: If you are someone who prefers to watch rather than read, you can follow the video version on the link below, do not forget to subscribe:

The WealthLab Platform: One Tool, Many Ways

Now here is the thing. WealthLab can be used by day traders, swing traders, positional traders, investors.

But the way everyone has to use it will be different.

A swing trader looks at breakouts. An investor might look at an overlooked sector where no one else is looking. A positional trader watches for regime shifts. An intraday trader hunts for quick spikes.

So in today’s video we are going to talk about how a swing trader can use WealthLab. This is one of the many ways in which I use it. You don’t have to subscribe to it the way that I do. But you can take ideas from it.

We’ll also make content on how investors, positional traders, or day traders can use WealthLab. This is just my approach.

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Step 1: The Relative Strength Screen

Let’s go explore analytics and go directly to the relative strength screen.

When you get there, you see three distributions. One for sectors and industries. One for market cap.

It says RS 81 to 100. That means the top 20% of the stocks. How are they distributed across the various sectors?

The idea here is simple: See where the strength is. See where the leadership is sitting. Get a broad idea. Okay, this sector or this industry or these themes is what I want to focus on. Not the others.

What sectors are important right now? Let me show you the current data.

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The top 20% of stocks are coming from healthcare, BFSI, auto, capital goods, technology, power, chemicals. These are the top performers.

At the same time, look at market cap distribution. The strength is in midcap and small cap. Mega and large cap are not as focused.

Back in February, 50% of the strength was coming from mega and large caps. Midcap and small cap barely had anything.

Now? Mega and large caps are only 22% of the top 20%. Midcap and small caps have taken over.

The sectors are still healthcare, BFSI, auto. But the cap distribution has completely rotated.

So now we know: Mega and large caps are not to be used. Mid and small caps is where the strength is. Healthcare, BFSI, auto, capital goods, technology is where the money is flowing.

This changes everything about where we look.

Step 2: Drilling Into Industries

Now we go to industries and see which ones within each sector are showing strength.

Let’s take healthcare. I see pharma formulation and pharma CDMO are showing strength.

I’ll click on pharma formulation. I’ll also add pharma CDMO.

Now I have filters set to RS 80 to 93 (we’ll explain this in a moment) and days in stage 2 from 0 to 10 (fresh breakouts for swing trading).

This gives me Zimlab. Let me check the chart.

You see a first leg up, then a narrow base formed, and another breakout might happen. This is the kind of setup we’re looking for.

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The Sweet Spot: RS 80 to 93

If I want to hold for 2 to 3 weeks (which is the usual time a swing trader wants to hold), I don’t want a stock that’s already sitting at 99.

If a stock is at 99, it’s in everyone’s eyes. There will be too much volatility. It’s great for an intraday trader or someone trading 2 to 3 days. Quick in, quick out.

But if I’m looking to hold for 2 to 3 weeks, I’m looking for a stock that has recently entered into stage 2.

So I use 0 to 10 days to show recently entered stocks in stage two.

And I use RS 80 to 93 because I want stocks that have the capacity to go to 95, 96, 97.

That way, even after 2 to 3 weeks if the trend is still strong, I can keep holding it. I can exit based on my own rules. I don’t have to take a quick exit.

RS 80 to 93 is my sweet spot.

Environment vs Setup: What Matters More

Now here is where it gets interesting.

Every trader has a question. What is more important: the environment or the setup?

If there’s a great setup but a bad environment, do we enter?

If there’s a great environment but an average setup, do we enter?

There are a lot of people with different opinions. But my view is clear.

Environment is more important.

A good environment will lead to an average trade being a great trade.

In 2023 and 2024 when the markets were going up, even the worst of stocks were rallying. No matter their price to earnings. No matter their fundamentals. No matter their institutional ownership.

It didn’t matter. Because the environment was so optimistic that everything was going up.

Market Breadth: The Real Environment Indicator

And this is why we built the Market Breadth tool on WealthLab.

This is how I look at environment. And this will answer a lot of questions about which phase we’re in right now.

If you look at 2023 and 2024, there are so many green bars at all times. The average height of the red bar is about minus 510.

This is the advance decline oscillator. It shows how many stocks went up and how many stocks went down. The net difference.

In 2023 and 2024, there was an average of around 700 stocks going up. They were densely placed.

But look at 2025 and 2026. So many red bars. Huge gaps between the up moves. Barely any up moves.

Back in 2024 there were so many green bars. Right now? The market is not very optimistic.

This is one of the 6 signals we track. Track all of them on WealthLab Analytics.

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The Rule for Trading Different Environments

The rule for swing traders: Track the environment constantly. In an easy money environment, trade more aggressively. In a tough environment, get selective. Focus on stocks with strong fundamentals and institutional backing. Never force trades into bad environments.

Your Next Step

You now have the framework. You have the filters. You have the environment checks.

Now it’s your turn. Go into WealthLab. Build your relative strength screen. Set your filters to RS 80 to 93 and stage 2 from 0 to 10.

Look at the charts. Study them. Let me walk you through the setups in detail in the next video.

From there, you’ll start seeing patterns. You’ll start seeing which stocks make sense for you.

The data is waiting.

Questions? Let's Discuss.

I will see you again soon,

With love,

Saksham

Most people don’t build portfolios. They accumulate stocks.

-AI 

There is a difference. A big one.

You have 20 names in your portfolio. The market drops 5%. Your portfolio drops 8%. You look at the list and think: I am diversified. I have 20 stocks. Why is this happening?

Here is why.

Diversification is not about the number of stocks you hold. It is about the relationship between them.

That is what this episode is about.

We are covering three things today:

1. how to actually build a portfolio?

2. what portfolio beta is?

3. why it matters, and when to churn your holdings.

This is Episode 7 of the Building Your Investing Framework series. The final one. If you have been following along from the start, this is where it all comes together.

Side Note: If you are someone who prefers to watch rather than read, you can follow the video version on the link below, do not forget to subscribe:

Part 1: The Real Meaning of Diversification

Let me show you two portfolios.

Portfolio A has 20 stocks. Wipro, HCL Tech, Infosys, TCS, Tech Mahindra, Axis Bank, IndusInd Bank, Kotak Bank, HDFC Bank, Federal Bank, Dabur, Hindustan Unilever, Britannia, and a few more.

Looks diversified at first glance. Twenty names. Different tickers.

But look at the sector breakdown: 9 IT stocks, 5 private banks, 5 FMCG. Three industries. That is it. When a macro event hits IT or financials, 14 out of your 20 stocks move in the same direction at the same time. The whole portfolio is hostage to two or three triggers.

Portfolio B has 10 stocks. Apollo Hospitals, Coal India, HDFC Bank, Hindustan Unilever, Infosys, Kalyan Jewellers, Maruti, Persistent, Sun Pharma, Titan.

Fewer stocks. But look at the industry spread: at least 7 to 8 genuinely different industries. Healthcare, energy, financials, consumer discretionary, IT, auto, consumer staples. These industries do not always move together. When different market cycles run, different parts of this portfolio pick up the slack

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Portfolio B is more diversified. Even with half the stocks.

This is the point. Diversification is a relationship, not a count.

The Concentration Trap

Here is something I see often. Someone gets excited about a theme. Say, power. Wires, cables, transmission, energy. All running. They load up. Five or six stocks from the same theme.

On paper, they have six different names. In reality, their whole portfolio depends on one trigger, one cycle, one policy decision.

When that theme cools, everything cools together.

You can be concentrated in a theme. That is fine and sometimes the right call. But within that concentration, diversify across the stocks in the theme so that no single name takes down the whole bet. If you want 30% of your portfolio in power, own three or four power stocks rather than one. When one specific stock takes a hit, the other two are still running.

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The Sweet Spot

So how many stocks should you actually hold?

Fewer than 8 and you are too concentrated. One bad call and it hurts badly.

More than 20 and you might as well buy an index fund. You cannot track that many names properly. You cannot rebalance them. Your returns will start converging with the broader market.

The sweet spot is 10 to 15 stocks. Concentrated enough to outperform, diversified enough to stay resilient.

And always, always carry at least one or two defensive names. FMCG, pharma, something boring. Here is why this matters more than people think.

When the whole market starts falling, your aggressive names drop fast. But your defensives drop slower. That gives you two things. First, a cushion on the portfolio drawdown. Second, liquidity. If you need cash urgently, or you want to rotate into something oversold, you can sell a defensive that has not fallen as hard. You are not forced to sell at the worst prices.

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From a trading standpoint specifically: if a stop loss triggers on a fast-moving stock and there is a circuit limit, you might be frozen out of selling it. Your defensive, which barely moved, is the one you can exit cleanly to free up capital.

The rule: Always hold at least one or two defensive stocks. They are your portfolio’s shock absorbers and your emergency liquidity.

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Part 2: Portfolio Beta

Now here is where it gets interesting.

You can have a well-diversified portfolio with 12 stocks across 8 sectors and still get wrecked in a drawdown. Why? Because of systematic risk.

There are two types of risk in markets.

Beta is about systematic risk. It tells you how much your portfolio moves relative to the market.

A beta of 1 means your portfolio moves with the market. Nifty goes up 10%, you go up 10%. Nifty drops 8%, you drop 8%.

A beta above 1 means you amplify market moves. Nifty drops 10%, you drop 15%.

A beta below 1 means you are more cushioned. Nifty drops 10%, you drop 6%.

Real Numbers

A few reference points to calibrate your thinking:

Hindustan Unilever, a defensive FMCG name, has historically had a beta well below 1. HDFC Bank, a large-cap in the top 10 of the index, has a beta close to 1 because it practically is the index. Smaller aggressive names in sectors like mid-cap IT or specialty chemicals can have betas of 1.3 to 1.5 or higher.

You can check beta for any stock quickly on Tickertape. Go to screener, open custom filters, add beta as a column. You can pull up the beta of every stock in your portfolio in two minutes.

You do not need to calculate it manually. But good to know how it works: it is the covariance of your stock’s weekly returns with the index returns over two years, divided by the variance of the index returns. The formula is not what matters. The number is.

Portfolio Beta: How to Calculate It

You weight it.

Take each stock’s beta and multiply it by that stock’s weight in your portfolio. Sum all of those up. That is your portfolio beta.

Simple example: five stocks, equal weights of 20% each, with betas of 0.7, 0.9, 1.1, 1.3, and 1.2. Multiply each beta by 0.20. Add them up. You get a portfolio beta of 1.04. That portfolio moves roughly with the market.

You can do this in a spreadsheet in five minutes. Or track it directly on WealthLab Analytics.

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When to Run High Beta vs Low Beta

This is the question that actually matters.

In a bull market, you want a high beta portfolio. When a secular bull run is underway, you want your portfolio to amplify the market’s gains. A beta of 1.2 to 1.5 means that when Nifty goes up 20%, your portfolio could go up 25% to 30%.

In a choppy or bear market, you want a low beta portfolio. When there is no clear direction, high beta means you feel every correction hard. It shakes you out of positions. It makes it impossible to hold anything for long. A low beta portfolio smooths out your equity curve. You stay invested longer. You do not get knocked out by short-term volatility.

The challenge is knowing which environment you are in. I have a couple of videos in the WealthLab playlist on market health and market breadth specifically to help you read this. Go through those in combination with this.

Part 3: When to Churn Your Portfolio

Everything is going well. Your stocks are performing. Returns are coming in. When should you still make changes?

Here are four triggers to watch.

1. Beta Drift

Your portfolio beta has moved away from your target. Say you are in a choppy market and you want a low beta portfolio. But certain stocks have run hard, their weights have increased, and now your portfolio beta is creeping up to 1.2. You have not made any new decisions but your risk profile has changed. Rebalance to bring it back down.

2. Correlation Spike

Two or three of your stocks start moving together in a way they did not before. Maybe a macro factor, a currency move, an interest rate decision has made previously uncorrelated names suddenly correlated. When correlation spikes within your portfolio, your effective diversification shrinks. Start looking for replacements.

3. Sector Breakdown

A regulatory change, an earnings shock, a structural headwind hits a sector where you are overweight. The whole sector de-rates. If a large chunk of your portfolio is in that sector, it is not a single stock problem anymore. It is a portfolio composition problem. The right answer is not to wait and hope. It is to rotate.

4. Position Creep

You put 7% into a stock. It doubles. Now it is 14% of your portfolio. Its beta might also be higher now given the momentum. That position is doing more work in your portfolio than you originally intended, and not always in a good way. Decide whether you are comfortable with that concentration and that beta contribution. If not, trim it.

Rebalance on Triggers, Not Just Calendars

A lot of people rebalance quarterly. There is nothing wrong with a calendar-based check. But do not wait for the calendar if a trigger has already fired.

Beta has drifted. Rebalance.

Correlation has spiked. Rebalance.

A sector has broken down. Rebalance.

A position has crept to uncomfortable size. Rebalance.

The calendar check is routine maintenance. The trigger-based rebalance is what actually protects you.

The Three Things to Remember

First, diversification is not about owning more names. It is about owning names that do not move together. Look at your sector distribution and correlation, not your stock count.

Second, know your portfolio beta. When the market is healthy, run higher beta. When the market is uncertain, run lower beta. This is how you smooth your equity curve over time.

Third, rebalance on triggers. Beta drift, correlation spikes, sector breakdowns, and position creep are all signals that your portfolio has silently changed. Do not wait for it to hurt you before you act.

Most people build portfolios by accident. Build yours by design.

Full series recap showing Episodes 1 through 7 with key topic from each

Check The Investing FrameWork Series

That is a wrap on the Building Your Investing Framework series. Seven episodes covering everything from idea generation to elimination, entries, stop losses, profit booking, and now portfolio construction.

Next up: Technical Analysis. Not the indicators-and-patterns version most people mean. The things that actually matter when you are analyzing a chart. Watch this space.

If you found this useful, share it with someone who is still counting stocks instead of managing correlations.

Yours, Saksham

Have a question about your portfolio construction? Drop it below.

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“The investor’s chief problem — and even his worst enemy — is likely to be himself.” — Benjamin Graham

Every week I sit down and do this. We look at what the market actually did, not what we thought it would do. And we back it with data.

This week I want to cover two things. First, a micro trend that is quietly unfolding in the Indian economy right now. Second, a full recap of what happened in the market over the last month using the WealthLab framework.

Let us get into it.

Side Note: If you are someone who prefers to watch rather than read, you can follow the video version on the link below, do not forget to subscribe:

The Thing Everyone Gets Wrong About Small and Mid Caps

Everyone knows this to be true. Small and midcaps make more money than large caps. At least, that is what the last cycle told us.

And over long enough time horizons, the data does support it.

f you look at a five-year window, the returns across market caps converge. Nifty, Nifty Smallcap, Nifty Midcap 150 — all land within proximity of each other over a complete cycle.

That convergence is not linear. There are long, painful stretches where small and midcaps massively underperform. Then they overshoot. Then they come back. Then they undershoot again.

Right now, we are in a very specific moment in that cycle. And I want to walk you through why I think the risk-adjusted case for small and midcaps is not as clean as most people assume.

Stay with me. I am going to take you through the data.

The Spread Is at a Historic High

Let me show you one chart. Just one. It tells the whole story.

It is the ratio of small and midcap performance versus Nifty 50. When this ratio is above zero, small and midcaps are outperforming. When it is below, large caps are doing better.

What you will notice is that this ratio is cyclical. Small and midcaps outperform, then underperform, then outperform again

The alpha — the spread between small and midcap returns versus large cap — is currently at the highest level it has ever been in the history of the Indian market.

Convergence happens. It happened every single time before. The only question is how it converges. Either large caps catch up. Or small and midcaps correct. Or both.

The core philosophy here that Nifty should give at least equal returns versus small and midcap for this ratio to compress. And it has not done that yet.

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Who This Applies To

I want to be clear about something.

If you are a swing trader who holds for three to seven days, maybe two to three weeks, this macro structure might not directly affect your next trade. What I am talking about here is a broad structural shift that could take another year, maybe eighteen months, to fully play out.

During that time, there will be phases where small and midcaps outperform again. There will be bounces. There will be setups that work.

But the risk-adjusted return picture — where you weigh the potential upside against the probability of a drawdown — might actually favour large caps right now.

That is the view I am taking. You do not have to subscribe to it

The Valuation Problem

As of early this year, the median valuation of small and midcaps was trading above its long-run average. The recent correction did bring it down somewhat. But we are still elevated.

The only index that corrected back to below its median valuation in the recent drawdown — the only one — was Nifty 50.

Large caps corrected to fair value.

For the broader market to support a secular bull run in small and midcaps, valuation needs to mean revert to at least the median. Every single time in history that the median valuation of small and midcaps came back to average, we saw a broad rally follow. That is when the environment for small and midcap stocks becomes genuinely favourable.

We are not there yet.

Easy Money vs Tough Money

Here is a framework I use.

There are two environments. Easy money environment and tough money environment.

In an easy money environment, everything works. Hit rates are high. Setups play out. You can make mistakes and still make money. The tide is doing the heavy lifting.

In a tough money environment, only selected pockets deliver. You need to be more precise. Your margin of safety needs to be higher. And chasing every breakout will cost you.

Now how do I know which environment we are in?

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Look at the ratio of smallcap to Nifty. Every time this ratio has bottomed out historically, a great rally followed in smallcaps. Every time it has peaked out, we entered a period of consolidation or underperformance.

Right now, this ratio is again near the top. After the recent correction, it came down slightly. But we are still at a level historically associated with the beginning of tough money environments, not easy ones.

So where are we? In a market where only selected pockets are working. Not everything together.

The Other Confirmation: Percentage of Stocks in Stage 2

Here is the indicator that removes all the noise.

What percentage of stocks are in Stage 2 uptrend right now?

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In a healthy, secular bull market, you typically see 40 to 50 percent of stocks in Stage 2 momentum.

During the April run this year, only about 20 to 25 percent of stocks moved above their 50-day moving average. That was not a broad rally. That was a flight.

Right now, we are sitting at approximately 16 percent of stocks in Stage 2 momentum.

Sixteen.

You cannot call this a secular bull market with that number. You cannot say small and midcaps broadly will deliver exponential returns in this environment.

This is a risk-first environment. And in a risk-first environment, the approach needs to be different.

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What This Means For My Portfolio Right Now

I want to be honest with you here.

I consider myself an average individual when it comes to timing the market. I do not think I am smart enough to always be on the right side. So I try to align with the market, not fight it.

My personal portfolio is currently tilted toward large caps. I do not know exactly what return it will generate. But I know my capital is more protected in this environment until things improve.

I have a few smallcap positions. I am watching them very carefully. Very clearly tracking how they are moving, what my exposure is, and whether the underlying earnings story is still intact.

If the environment improves and earnings pick up, I will be quick to rotate money back in. But right now, I am playing safe.

My expectation is 12 to 15 percent CAGR. If your expectation is 25 to 30 percent, this view might not work for you, and you might need to take higher risk. That is a valid choice. But know that it comes with the corresponding drawdown risk.

My personal drawdown during the March correction was not significant. The current rally has put me into decent profit. But for most people chasing smallcap momentum right now, the picture is less clean.

The Weekly Recap: What Actually Happened in May

Nifty gave zero returns over the last month. The market was sideways compared to the prior month.

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Continue with the remaining piece here:

• What happened last week

• Sectors in Rotation and Strength

• Industries that entered Stage 2

The Bottom Line

Here is my take on where we are.

This is a hard market. Not an easy money environment. The secular bull market is still running, but we are in a phase where having tighter stop-losses, higher selectivity, and faster rotation makes a lot more sense than broad small and midcap exposure.

The broad market remains common for everyone. The stock-level setup and entry is personal.

Trade accordingly.

The rule for right now: In a tough money environment, the edge comes from selectivity — not exposure. Pick your pockets carefully, keep your capital protected, and be ready to rotate fast when the environment shifts.

Yours, Saksham

What sector are you most cautious about heading into June? Let me know in the comments.

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This is not a financial recommendation. These are my personal views on market structure. Do your own research and trade based on your own risk appetite.

"Investing is the intersection of economics and psychology."
— Seth Klarman

Everyone tells you what to buy.

Your friends. The news. The finance Twitter guy who posts every day. The analyst on CNBC.

Nobody tells you when to sell.

And that is where most people quietly lose money.

Today we fix that.

This is Episode 6 of the Build Your Investment Framework series. We are going to cover exactly when and how to sell your stocks — for both value investors and momentum investors. Two different types of investors. Two different sets of rules.

Pick the ones that match how you actually invest.

Side Note: If you are someone who prefers to watch rather than read, you can follow the video version on the link below, do not forget to subscribe:

Part 1: The Value Investors

For value investors, there are two rules for profit booking.

One is anchored in fundamentals. The other is triggered by structure. You need both. They cannot work independently.

This is the most important one. Let me walk you through it.

You invested in a business at a PE of 15. The EPS was growing at 25%. There was order book visibility, clean fundamentals, and a price structure that was just starting to break out. The story made sense. The valuations were low. You bought.

Now it is 2 or 3 years later.

The PE has rerated from 15 to 40. The earnings growth has started to slow from 40% down to 25%, then 20%. Operating margins have peaked and started compressing.

Now here is the thing.

The condition that made you buy in the first place — low valuations, high growth expectations — has completely reversed. When that reversal happens, it warrants the exact opposite of buying.

That is selling.

This does not make it a bad business. It just means the price has run ahead of what the fundamentals justify. The story is pricing in a future that the business may not deliver.

There can be different ways the story gets ahead of the business:

Margin peak. Margins go up. Then they start coming down. When you see margins peaking and starting to compress, smart money starts to leave. You should too.

PE overextension. The PE starts to exceed the earnings growth rate of the company. That is the zone where you need to start paying attention.

A real example — Trent (2023 to 2024)

Trent was the market’s favourite in 2023. The stock went from 2,000 to 8,000. That is 4x in 2 years.

Now look at what happened to the fundamentals during that same run.

Earnings growth went from 1200%, then 126%, then 44%, then 33%. Slowing down with every quarter. Operating profit margins peaked around December 2024 and started coming down. And the stock peaked in October 2024 and has been falling since

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The story got ahead of the business. And exactly at that point, it was prudent to take some profits off the table.

This can start going up again over time. That is not the point. The point is that when the price runs ahead of what the business is actually doing, you do not need to predict a top. You just need to respond to what the data is telling you.

The rule for value investors: Sell when margins peak and the PE runs ahead of earnings growth. The story has exceeded the business. Take some money off the table.

Rule 2: Do Not Sell All at Once. Let the Moving Averages Guide You.

Once you have identified that the story has gotten ahead of the business, you need a systematic way to exit. Not a guess. Not a prediction.

Here is one way to do it.

Sell one third of your position when the 50-day moving average breaks. Sell another one third when the 100-day moving average breaks. Sell the final one third when the 200-day moving average breaks.

Why does this help you?

Because a stock can keep extending even after it is overvalued. This method prevents you from exiting too early and throwing away upside that still exists. You are not predicting a top.

Going back to Trent as the example — one third got exited at 7,300. Another one third at 6,600. The final one third at 6,000. Average exit price around 7,000.

If you had tried to predict the top and called it in July, you would have left significant money on the table. If you had waited for the “perfect” exit, you would have ridden it all the way down.

The moving average framework removes both mistakes.

A note on position sizing in the exit

Maybe you want to stay invested in a great business for the long term but still want to reduce some exposure temporarily. That is fine.

Say you decide to exit 50% of your position systematically. Split that 50% into three equal parts. Exit each part as the respective moving average breaks. The remaining 50% stays invested, keeps earning dividends, and captures any positive surprise.

You get three things at once:

1. Profits locked in your bank account

2. Continued exposure to any upside

3. A systematic process so there is no regret

What percentage you exit is up to you. That depends on how you see the business and how long your holding period is.

The rule for value investors: Do not sell all at once. Let moving averages structure your exit. You are not predicting the top. You are responding to what price is doing.

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Part 2: Momentum Investors

Momentum investors hold stocks for 3 days to 3 weeks to 3 months. The intent is simple. Be a part of the uptrend. Get out before the downtrend.

The rules for profit booking are going to be different from value investors.

Rule 1: Take Profit at Multiples of Your Risk

This is R-based profit booking. Let me explain it cleanly.

Your risk on a trade is defined by your stop loss. If your stop is 5% below your entry, your risk (1R) is 5%.

Now you scale out as the price extends in your favour.

At 2R (10% up), sell one third of your position. At 3R (15% up), sell another one third. At 4R (20% up), either sell the final one third or put a trailing stop loss at 3R and let it ride.

Nobody catches the top. Not you, not me, not the smartest trader you follow on the internet. The goal is not to catch the top. The goal is to keep selling systematically as the price moves in your favour, so that whenever you are right, you keep getting paid.

No regret that you should have held longer. No regret that you held too long and gave it all back. You are sticking to the framework. The framework rewards you.

At 1R, move your stop to breakeven so there is no loss on a profitable trade. At 2R, stop moves to 1R and you book one third. At 3R, stop moves to 2R and you book another one third. At 4R, decide whether to close out or trail.

The rule for momentum investors: Take profit at multiples of your risk. Scale out systematically as price extends in your favour. Compound without regret.

Rule 2: Exit When the Stock Gets Extended From Its Moving Average

Every stock has a behaviour pattern. It extends from its moving average by a certain percentage before it mean reverts back.

Your job is to study that pattern historically and use it as your exit signal.

Look at the 50-day, 150-day, and 200-day moving averages. Study the historical data. Figure out how far the price has typically extended from the relevant moving average before it started pulling back.

If the stock has historically extended a maximum of 20% from its 150-day moving average before mean reverting, then that 20% extension is your cue. Start booking profits there. You are not predicting a reversal. You are reading the stock’s own historical behaviour.

A real example - Adani Power

Looking at historical price data, Adani Power had extended roughly 40% from its 150-day moving average before pulling back.

So the rule becomes: when the stock extends 40% from the 150-day MA, start booking profits.

If the 150-day MA is at 150, then 40% above that is 210. At 210, you start exiting.

Do your research and tell me where did the stock revert and how.

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Holding for 2 to 3 days or 2 to 3 weeks? Study the 50-day MA extension. Holding for 2 to 3 months? Use the 150-day or 200-day MA as your baseline.

The rule for momentum investors: Study how far your stock historically extends from its moving average. Use that extension as your exit signal. Mean reversion is the edge.

Putting It All Together

Four rules. Two for each type of investor. Here is the full picture.

Value Investors:

1. Sell when peak margins and PE overextension signal the story is ahead of the business

2. Use MA-based systematic exits in thirds — do not try to call the top

Momentum Investors:

1. Take profit at multiples of your risk (R-based exits)

2. Book profits when the stock gets extended beyond its historical average from the moving average.

   

These rules have to align within each framework. The fundamental trigger and the MA exit work together for value investors. The R-based exit and the MA extension work together for momentum investors.

Pick the framework that matches how you actually invest. Then stick to it.

Before you place your next trade, answer this question honestly.

At what price will you regret not having sold?

Define that number before you enter. That is your profit booking plan.

Episode 7 covers portfolio construction, portfolio beta, and how to churn your portfolio. When exactly should you move from one stock to another? That is what we will cover next.

If this episode was useful, tell us in the comments. It helps us keep making this series.

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Yours, Saksham

“The investor’s chief problem — and even his worst enemy — is likely to be himself.” — Benjamin Graham

Today is the 12th episode of The Lab LookBack.

A lot of you have been asking me the same question. How can I do index investing properly? How can I do ETF investing and still get more than just average returns? How can I manage my own portfolio without handing it over to a fund manager?

And here is why you are asking that.

No skin in the game. No accountability. Returns that can not beat the market anyway.

You want to be in charge. That should be the number one priority. And today I am going to show you how.

In this 12th episode of The Lab LookBack, we are going to cover three things.

• One: ETF investing for value investors.

• Two: ETF investing for momentum investors.

• Three: What happened in the Indian markets over the past week and how you can use that information to rebalance your portfolio right now, independently, without anyone else.

Without further ado, let us get started.

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A Quick Note on WealthLab

At WealthLab, we made a promise. Whether you are a value investor or a momentum investor, we are going to help you do ETF investing properly. We will take you through both.

We recently launched a new feature called Nifty Indices on WealthLab Live.

When you click on Nifty Indices, you will see around sixteen indices listed and ranked across categories. Sectoral. Market cap. Thematic. Factor. You can see how each has been performing and how they stack up against each other across different time frames.

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That is the tool I am going to use today.

Part 1: ETF Investing for Value Investors

Let me walk you through the value investor’s approach first.

The core idea of value investing is this. You want to invest where there is underpricing. Where the current market price is below the fair value of the asset. You take a position. You wait. Three to five years. And you hope that the value of your investment converges with the real value of the business.

In short: you want to find the assets that are cheap today and overlooked today.

Now here is where it gets interesting.

If you are looking for underpriced assets, where should you be looking? You should be looking exactly where everyone else is running away from. The sectors that are totally overlooked. The areas where the market is selling, not buying.

That is where the probability of finding underpriced assets is highest. Bargains do not show up in sectors that are already on every newsletter.

So the question is: how do we find those sectors?

We use the Relative Strength Ranking on WealthLab

Instead of sorting from best to worst, we sort in ascending order. Most ignored at the top.

Here is what shows up in the sectoral category right now.

Nifty IT. Nifty Media. Nifty Realty. Nifty Services Sector. Nifty FMCG. Nifty Private Bank. Nifty Financial Services.

These are the most ignored sectors in the market right now.

Now I want to be clear about something. Thematic indices are very concentrated. If you are not an expert in that theme, I would not go there. But sectoral indices? That is where we dig.

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One more thing worth noticing. When you cross-reference this list with what multi-asset funds like Parag Parikh are buying, you will see a common theme. Selected IT. Selected Private Banks. Selected Oil and Gas. These are the same areas showing up at the bottom of the ranking table. That is not a coincidence.

The rule for value investors: Go where the RS ranking is lowest. That is where undervalued opportunity hides. The RS ranking is your filter, not the news.

Case Study: Nifty IT

I am picking this because the data is genuinely interesting right now.

Nifty IT has been performing poorly for several weeks. Everyone knows this. But here is what people are not looking at.

For three consecutive quarters, this index declared poor results. But this quarter, things are starting to turn. Sales growth is up. Operating profit is up. EPS growth is up. Across the board, you are seeing 50% plus median EPS growth for Nifty IT.

And yet the index is still being sold.

That is a disconnect. And that disconnect is exactly where value lives

Now look at the Nifty IT ratio versus the Nifty 50. We are currently at one of the second most undervalued phases on this ratio in recent history. The last time we were at similar levels, we saw a multi-year rally in Nifty IT that followed.

Earnings are pressing in. Valuations are compressed. The tide has gone out here. And the question is only when it turns.

From here, you can drill deeper. Go to the individual stocks within Nifty IT. Check price to book ratios. Check earnings trajectory. Find the companies where fundamentals are improving but price has not yet caught up.

Case Study: Nifty Private Bank

Same playbook. Different index.

Filter by price to book percentile across the Nifty Private Bank index. You will immediately see that average price is below historical norms. HDFC is standing close to its long-term average. ICICI might be marginally higher.

But look at operating margin trajectory across the index. It is holding up well.

Check Private Banks on WealthLab

Part 2: ETF Investing for Momentum Investors

Now we flip the script entirely.

For momentum investors, you do the exact opposite. You sort the RS ranking in descending order. From top to bottom. You want the sectors with the highest strength, the cleanest trends, and the freshest breakouts.

Right now, here is what tops the list.

Nifty Cap Markets. Nifty Metal. Healthcare. Pharma.

These have been breaking out. Strength has been building over the past several weeks and it is continuing.

You can also look at Nifty EV, Nifty New Age, Nifty Infra. These are showing early stage momentum pickup.

Now here is the thing about momentum investing.

You are not looking for undervaluation. You are looking for a trend that is already in motion and has the legs to continue. You get in. You ride. You exit when the trend breaks. That is it.

The rule for momentum investors: Sort the RS ranking descending. Pick sectors where the green bars are increasing, where the RS trend has been going up, and where there are fresh stage two breakouts. That is your shortlist.

That is the ETF selection framework for momentum investors. Clean. Data-backed. No noise.

Part 3: The Weekly Market Recap

Now let us talk about what actually happened in the Indian markets over the past seven days and how you can apply everything above to your portfolio right now.

The Nifty 500 gave a 0.61% return over the past week. Essentially flat.

The percentage of stocks above the 200 day moving average has come down from 51% about two weeks ago to around 43% now. The rotation signal is also starting to favor small and midcap. That means risk is on, at least for now.

But here is what the rotation signal itself is actually saying.

When we go to Market Breadth, you will see that the rotation signal has already made a peak. It is now coming down. It has not broken yet. But it is not expanding anymore.

That means we might be looking at a pullback in small and midcap coming up. Still in their favor. But the signal seems to have hit a top.

Be cautious.

What the Breadth Data Is Telling You

About a month ago, we saw a huge rally across the board. Almost everything went up. At the peak, 87% of stocks were above their 50 DMA.

Now we are at 68%.

And here is the observation I have made from tracking this data myself.

A rally where everything goes up is not actually healthy. It does not declare leaders. It just lifts everything including a lot of laggards that have no business going up.

What we actually need is a healthy pullback. Because in the pullback, the real leaders reveal themselves. The stocks that hold when the tide goes out. Those are the ones worth owning.

The daily stocks up versus stocks down ratio is also balancing out after being heavily skewed about 15 days ago. That is healthy. But it needs to wash out a bit more.

If you are initiating new positions, you want to be closer to the bottom of the pullback, not the top of the rally. There is no single perfect way to time that. But the breadth data gives you a reasonable read on where we are.

Stage Two Pipeline: Who Is Moving Right Now

Let me walk you through what is entering stage two this week.

Six auto ancillary stocks have entered stage two.

In IT services, two stocks have entered stage two. DSN and Kodak. Both small cap. Market caps in the 3000 to 4500 crore range. So this is not a large cap IT bull run yet. But there are early movers in small cap IT services.

In private banks, two stocks have entered stage two.

Pharma formulations has been picking up for the past couple of weeks and is entering stage two again.

Now one flag on auto ancillaries.

When you look at the RS curve for the sector, it is starting to flatten. Red bars are appearing. The run started back around April 2025. Then got a boost from the GST cut in August and peaked out. Now it is dipping a bit. This feels like a late stage cycle. Be careful about chasing it.

Textiles on the other hand is picking up. That is worth looking into.

Sector Rotation: Where Is the Strength Going

Defense is losing steam. Only 21% of defense stocks are in stage two now. That is a significant drop.

Services has picked up. Mining and metals has picked up and has been going up for a while now.

Healthcare and pharma is where the strength is flowing right now.

Wires and cables was the leader last month. It is retreating.

Jewelry lost trend last week. It is picking back up now after the Prime Minister’s speech.

Railways has lost a lot of ground after being a market favorite for a very long time.

Within healthcare, pharma formulations is the strongest performing industry. Lincoln Pharma has entered recently from small cap. Medico has entered from micro cap.

That is where the strength within healthcare is concentrated right now.

What This Means If You Are a Value Investor

The opportunity in IT and private banks still holds. But here is the nuance.

When the RS curve in these sectors starts to turn upward, that is your signal that the turnaround is getting traction. When value indices start picking up strength, that is when you go deeper. That is when you add more conviction.

Right now the data is supporting the thesis. The fundamental turn in IT is visible. Valuations in private banks are compressed. The breadth data will tell you when it is time to move with more size.

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Let Me Bring This All Together

This week we spoke about three things.

First: How to do ETF investing if you are a value investor. Use the RS ranking in ascending order. Find the most ignored sectors. Drill into fundamentals. Look for earnings improvement where price has not caught up. Nifty IT and Nifty Private Bank are the candidates right now.

Second: How to do ETF investing if you are a momentum investor. Flip the ranking. Go descending. Healthcare, pharma, metals, cap markets are leading. Filter for stage two stocks within those sectors. Build your watchlist from there.

Third: The current weekly picture. Market breadth is healthy but needs more washout. Rotation signal has peaked. Do not rush entries. Let the leaders reveal themselves in the pullback. That is when you go in with conviction.

We do this every single week. Every week we bring out the insights directly to you so you can make better decisions on your own.

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If you want us to cover any specific topic, drop it in the comments below. I read every single one.

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And if you want to explore all of this yourself, visit WealthLab and take the five day free trial. See what the product can actually do for your process.

Yours, Saksham

What did you find more useful this week: the value screen or the momentum screen? Let me know below.

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“The market is a device for transferring money from the impatient to the patient.” — Warren Buffett

Stop loss. Stop loss. Stop loss everywhere.

You have read about it. You have been told about it. You probably have one on every trade.

And yet your stop keeps getting hit.

The stock dips to your level. Triggers you out. And then — without you — it rallies by 20, 30, sometimes 40%.

You feel frustrated. You feel angry. You ask yourself what am I doing wrong?

Here is the answer. You are not doing your process wrong. You are doing it in the wrong regime.

This is Episode 5 of the Investing Framework Series by WealthLab. In this piece, I am going to walk you through three ways to place an efficient stop loss depending on the market environment you are trading in. So your stop is not easily taken out. And your trade gets the breathing room it deserves

If you wish to watch it rather than read, here is the link:

The Real Problem With Tight Stops

Here is what every book, every course, every Twitter thread tells you.

Keep your stop tight. A tight stop gives you a better risk to reward. 10:1. 15:1. That is how you build an edge.

And that is not entirely wrong.

When markets are in a clean bull phase, trending upward, breakouts working, low volatility, a tight stop keeps you out of poor stocks. The logic holds.

But here is what they do not tell you.

When volatility spikes, a tight stop does not protect you. It punishes you. Your stop gets triggered not by a reversal. It gets triggered by noise.

The India VIX is currently sitting at 18 to 19.

What does that mean? The market is pricing in an 18 to 19% total move in Indian equities over the next year. For individual stocks, that means moves of 25 to 30% are not just possible. They are expected.

In a market like this, the staircase becomes a staircase with very wide steps. Stocks do not move in small, predictable increments. They chop. They shake. They hunt levels.

And if your stop is sitting two percent below your entry, you are going to get stopped out of trades that are actually right.

Now here is the thing. The regime has changed. But most people have not changed with it.

Two Personal Trades That Taught Me This

Let me walk you through my own mistakes. But this hit my actual PNL.

Trade 1: Laurus Labs

Around March-April last year, I saw Laurus Labs break out of a range. I took the entry. I kept my stop tight, right below the daily moving average. About two percent from the move.

The next day, my stop was taken out.

And then the stock rallied without me.

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Trade 2: Force Motors

Later in the year, I was looking at Force Motors. November, the stock broke out. I took the entry with a very tight stop.

What happened? The stock went down to my stop, hit it, and then rallied by four thousand points over the next two months.

I could not participate. Just because my stop was too tight. I did not know the market environment had changed.

These are not exceptions. This is happening to people everywhere on social media right now. Stops being taken, stocks running.

And the reason is simple: the regime changed.

🔁 Share this with a trader you know 💬 Tell me your stop loss story in the comments

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Three Ways to Place Your Stop in a High Volatility Environment

Right, so now we get to the actual framework. I will take you through three types of stops. Use them based on the environment you are in.

Method 1: Structure-Based Stop (Anchored to Market Structure)

This is the most productive method for swing and positional traders.

The idea is simple. Find the level the market actually respects. That could be a moving average, a major swing low, or a demand zone. Then place your stop one percent below that level.

Do not draw an arbitrary line. You are anchoring to a level that the market has already shown it cares about.

Let me go back to Force Motors for a second.

When I went back through the chart, I noticed something. The stock never closed below the 150-day moving average. Not once. Every time it approached that level, buyers showed up.

That was the structural support. Not the tight level I had drawn for myself

If I had kept my stop at the 150-day moving average, I would have been able to ride that entire four thousand point move.

Placing a Stop is not wrong, placing it at the wrong place is wrong,

The rule for swing and positional traders: Identify the moving average or demand zone the market has respected historically. Set your stop one percent below that. Not below an arbitrary line you drew.

Method 2: ATR-Based Stop (Average True Range)

This is best for trending stocks, intraday trading, and swing trading in volatile environments.

ATR stands for Average True Range. It tells you how much a stock is actually moving on an average day.

A quiet stock has a small ATR. A wild stock has a large ATR. If you keep the same percentage stop on both, you are not accounting for the stock’s natural breathing room.

Stop = Entry Price minus (ATR multiplied by 1.5 to 3)

At minimum, your stop should be at least one ATR away from your entry. Two to three times ATR gives you more room. And if your ATR stop happens to coincide with a moving average, that is even better. You are combining two signals pointing to the same level.

“The logic is this. Within the ATR range, there is going to be noise. Buyers and sellers fighting it out. You do not want your stop sitting inside that noise. You want it outside.”

If a stock is trading at Rs 1000 and its ATR over the past 14 days is Rs 40, then your stop should be at least Rs 960. Ideally Rs 920 or lower depending on the trade structure.

The rule for swing traders in volatile markets: Your stop must sit outside the ATR range. Anything inside is noise. You are not protecting capital by placing it there.

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Method 3: Percentage-Based Stop

I will be honest with you about this one.

It works. But it is the least efficient of the three. And it is the most dangerous if you do not calibrate it properly.

A five percent stop on one stock might be inside its ATR. On another stock with a smaller daily range, five percent might be three ATRs away.

Percentage-based stops are fastest to calculate. That is their only real advantage.

Where they are genuinely useful is with large cap, stable companies where the daily range is small and predictable. For a stock like a Nifty 50 heavyweight, a five percent stop often makes sense. It is a clean, fast way to fix your risk before you even look at the chart.

But for a mid-cap or small-cap in a volatile market? Do not rely on percentage alone.

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The rule for traders using percentage stops: Only use a fixed percentage stop if that percentage is larger than the stock’s ATR. If the ATR is six percent and your stop is five percent, your stop is useless. You are already inside the noise.

The Six Questions to Answer Before You Enter

Before you place any trade, run this checklist. If you cannot answer all six, you are not ready to enter.

Question 1: Where is the nearest structural support?

This is your moving average, your major swing low, or your demand zone. Example: if structural support is at Rs 3000 and you are entering at Rs 3200, you cannot keep a stop at Rs 3180. You keep it just below the structural support.

Question 2: What is the current VIX environment?

VIX elevated right now. Tight stops will not work. You need to give your trade more room. This is the most common mistake I see people making right now.

Question 3: Is my stop at least one percent below the support zone?

Not at the support. Below it. Stocks fluctuate around support levels. There will be noise. Buyers and sellers fighting over price. Your stop needs room for the stock to fluctuate and recover. One percent minimum.

Question 4: Have I defined my stop type before taking the entry?

ATR-based, structure-based, or percentage-based? Pick one before you enter. Do not decide after. The three types exist for different environments. High volatility, trending markets, and stable large caps respectively. Define it upfront.

Question 5: If my stop is hit, was my trade idea actually wrong?

This is the question people miss the most.

Go back to the Laurus Labs example. When my stop was hit, was my trade idea wrong? No. The stock went on to prove the thesis. I was wrong about where I placed the stop.

So ask yourself: does this stop being hit actually invalidate my trade? Or did I just put the stop in the wrong place?

If the answer is the latter, go back and find the level the stock actually respects. That is your real stop.

Question 6: Am I comfortable losing this amount in rupees?

Not in percentage. In rupees.

Picture the actual PNL hit. If your stop is triggered, how will you feel? Can you sleep that night?

If the answer is no, reduce your position size. Not your stop. Your position size.

Because trading has a 45 to 55 percent win rate at best. You cannot win all the time. And the trades where you are not comfortable with the potential loss are the trades where you will make emotional decisions.

When your capital grows, you have to start thinking in percentages because the psychology shifts. Rs 50,000 on a Rs 50 lakh capital feels different from Rs 50,000 on a five crore capital. Even if the percentage is identical. The emotional weight is different. You need to be calibrated for both.

Bottom Line

If you cannot answer all six questions, you are not ready to take the trade.

Take a screenshot of that checklist. Pin it to your desktop. Put it on your trading desk. Answer all six every time.

Anchor the stop. Buffer the noise. Trade without regret.

That is the most efficient way to do this.

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In the next piece, we will talk about position sizing. And if you missed the earlier episodes in this series, we have already covered how to get ideas, eliminate ideas, evaluate companies on ROE and EPS, and how to prioritize your idea funnel. All of it is linked below.

Yours, Saksham

What is the one stop loss mistake you have made most often? Drop it in the comments. I read every one.

“The four most dangerous words in investing are: this time it’s different.”
- Sir John Templeton

How many times has this happened to you?

You buy a stock. Almost the second the order fills, it reverses. Hits your stop-loss. Then, like the market was waiting for exactly that, it turns around and starts going up

Stop. Trading. The. Breakout.

Here is what I have learnt from tracking this myself. The operator on the other side of your breakout already knows where your entry is. He knows where your stop-loss is. He knows where your target is. NDTV, CAMS, Easy Trip, DMart, take your pick.

The cleanest way to transfer money from you to him is to let you chase a breakout near resistance.

So in this part of the Investing Framework series, I am going to tell you about three unique ways in which you can take entries without any of this.

Without anyone knowing where you are buying. Without the stop-loss hunters knowing where to push the price. And with the maximum margin of safety on every position.

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Side Note: If you are someone who prefers to watch rather than read, you can follow the video version on the link below, do not forget to subscribe:

A Quick Recap of Where We Are

Three episodes in, here is what we have built so far.

In the first three videos of the Investing Framework series, I spoke about how to generate ideas, how to eliminate the bad ones, and how to pick from the good ones. By now you should have a list of good ideas that you can start putting money into.

Now we are talking about how to put that money in. How to decide when to enter.

So let’s get started.

1: The Pullback Setup. The First Way to Take an Entry.

There is one thing that a lot of people miss when they look at a chart. Stocks do not move in straight lines. They move in waves. Up, down, down, up. Down, down, down, up.

I am a pullback trader. I buy pullbacks. And here is the reason why. Buying a pullback in a way that makes sense increases the probability of hitting a positive, profitable trade.

Stay with me

Look at the chart above. Emcure. A pharma company.

The green line is the 50-day moving average. This is going to be my short-term floor.

The yellow line is the 150-day moving average. This is going to be my stop-loss.

When this stock broke out on 24th March around the 1600 levels, if I would have taken an entry right at that breakout, my stop-loss would have been taken out almost immediately. The price came back, retested the green line, and then went again.

That second touch, the pullback to the green line, is where the entry actually has to happen. From there, the stock has already done about 100 to 200 points. That is roughly a 20% move on this trade.

The rule for pullback traders: Do not buy the breakout. Wait for the pullback to your short-term moving average. Buy there, with your long-term moving average as the stop-loss.

How Long Are You Planning to Hold?

This is the part most people skip. And it is the part that decides which moving averages you should be using.

I intend to hold most of my swing positions for 3 to 6 months, sometimes more. That is why I use the 50-day moving average as my short-term floor, and the 150-day as my stop-loss.

If you want to hold for 3 to 6 weeks, you can use the 20-day as your short-term floor and the 50-day as your stop-loss.

If you want to hold for even longer, 12 to 24 months, you can use the 100-day and the 200-day.

The principle is the same. The numbers shift based on your holding period. Pick what fits the time horizon you actually trade in.

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2: Now the Math. Because Without It, Nothing Else Matters.

Before you ask “how much can I make on this trade”, you have to ask How much can I lose?

I will give you the rule.

Risk-to-reward must be at least 1:2. If it is not 1:2, you do not take the trade. Doesn’t matter how good the setup looks. Doesn’t matter how strong the fundamentals are. Doesn’t matter what the WhatsApp group is saying.

Let me show you with numbers.

Suppose a stock has a risk of 5% and a potential reward of 7%.

That is not even 1:1.4. Why would you buy it? As strong as the setup may look, you should not be buying at that point.

Now take another example. Max risk is 15%, expected reward is 30%. That is 1:2. That math works. That trade you can take.

So what do you do over here? You wait. You wait for the risk to drop, or the reward to expand. Meaning, you wait for the stock to pull back closer to your moving average stop-loss. From there, your 3.5% risk to 7% reward becomes 1:2. Now you can trade it.

This is what I want you to really hear.

The same stock, at two different prices, can be a buy or a no-trade. The fundamentals haven’t changed. The story hasn’t changed. The only thing that has changed is where you are entering.

Three Ways to Define Your Reward

Now you might be wondering. How do I define this reward number? Where does 7% or 30% come from?

There are three ways.

One. Prior high. Look back on the chart. What is the most recent visible resistance? In Emcure, when I was entering at 1500, I knew 1650 was the prior visible resistance line. That is the first reward target. 1500 to 1650 is 150 points. Risk on the downside (1500 to 1430) is 70 points. That math is more than 1:2. Done.

Two. Visible resistance from a longer time frame. Open the weekly chart. Find the most recent zone where price has been rejected before. That is your reward ceiling, at least the first one.

Three. Fundamental thesis. This is where the work you have done before this matters. If you have a fundamental case, a re-rating valuation study, a sectoral tailwind, a fair value gap, then your reward target can be based on that fundamental upside. The chart just gives you a clean entry into a story you already believe in.

The rule for the math: Pick one of these three. Anchor your reward to something real. Never make it up.

Bringing It All Together

So here is the entry framework, end to end.

You have your idea funnel from Episodes 1, 2, and 3.

You wait for one of those names to pull back to your short-term moving average. The 50-day if you are holding for 3 to 6 months.

You check that the volume is drying up, not expanding. You check that the EMA is holding, not breaking.

You then do the math. Risk to your stop-loss (the 150-day MA). Reward to the prior high or your thesis target. If the math is at least 1:2, you take the trade.

If it is not, you wait. You sit in cash. You move on to the next name.

That is the entire entry setup. Boring. Mechanical. Disciplined. Which is exactly why it works

In the next episode, I am going to talk about the part that comes after you decide to enter. Position sizing. Because even the cleanest entry doesn’t move the needle if your position size is too small. And the most beautiful breakout can blow up your account if your size is too big. Position sizing is the least talked-about part of investing, but it is the one that decides whether you make money in this lifetime or the next.

See you on Wednesday.

Yours, Saksham

"The trend is your friend, except at the end where it bends." 

— Ed Seykota

Disclaimer: This post is for educational purposes only. It is not investment advice or a recommendation to buy or sell any securities. I am not a SEBI-registered investment advisor. Please consult your RIA before putting in your hard-earned money.

It has been exactly one year since India launched Operation Sindoor.

In those twelve months, the Nifty India Defence Index is up 30%. MTAR Technology is up over 160% just Year to Date. Mazagon Dock sits at a relative strength rank better than 99% of the market. BEL, GRSE, Data Patterns, Paras Defence, all parabolic.

If you had bought defence on the morning of May 8, 2025, you are sitting on a fantastic year.

But markets are never that simple.

This piece is not about whether defence is a “good” sector. The order books are real. The execution capacity is improving quarter over quarter. None of that is in dispute.

This note is about something else entirely.

It is about what the data is telling us right now!

So grab your coffee. Let’s get into it.

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Side Note: If you are someone who prefers to watch rather than read, you can follow the video version on the link below, do not forget to subscribe:

The price is at all-time highs. The strength isn't.

Here is the thing most people are missing.

When we look at defence on Wealth Lab, the headline numbers are still bullish. Defence and Aerospace is the 7th best-performing industry in the market. 36% of the 22 listed defence stocks are in Stage 2 accumulation. The leaders, Mazagon, BEL, GRSE, Data Patterns, are still showing up on every screener.

But there are two charts that change the picture.

The first is the RS Rate of Change.

This tells us how the relative strength of the sector is evolving every day, every week. A year ago, this was an unbroken wall of green bars. Strength was building daily. The sector was leading the market and accelerating.

Now look at it

The green bars are tiny. The red bars are bigger than the green ones. Strength is no longer building.

The second chart is even more telling.

Defence stocks are sitting at all-time highs in price. But on the relative strength chart over the past year, you can see a clear divergence. Strength has rolled over from the top 80% of the market and is drifting down.

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Price is going up. Strength is going down.

This is a textbook late-stage move.

And then there’s the valuation problem

Sort the defence stocks by price-to-earnings. Almost the entire list is sitting at PE multiples of 70, 73, 75, 80.

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Even HAL, the “cheapest” name in the basket, is stretched on its own historical multiples.

For a sector that runs on lumpy government order flow and execution risk, these multiples need everything to go perfectly just to hold up. There is no margin for a missed quarter, a delayed delivery, or a procurement cycle that slows down.

Is the long-term India defence story intact? Probably yes.

Is the risk-reward today the same as it was twelve months ago? Not even close.

If you are sitting on defence positions right now, this is not the moment to look away. It is the moment to have a written plan. What is your stop, what is your trim level, what does “the trend has bent” actually look like for you in numbers.

We are not telling you to sell. We are showing you what the data is showing us. The decision is yours.

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This isn’t just about defence. The whole market is stretched.

Now zoom out.

In the past one week, the Nifty 500 returned 1.74%. Sounds healthy. But underneath, the breadth tells a more uncomfortable story.

84% of stocks are above their 50-day moving average.

Read that again.

Only 1 in 5 stocks in the broader market is below its 50DMA. Almost everyone who bought anything in the last fifty days is sitting on a profit.

What does that lead to?

Profit booking. Short-term holders start ringing the register. The market needs a healthy pullback for long-term holders to keep holding while the weak hands rotate out.

And we have been here before. The last time breadth pushed into the 84 to 86% zone, the market did not reward fresh longs. It chopped, then declined.

Other breadth signals are starting to confirm:

Daily 4%-up stocks: 51 (May 6) → 19 (today)
Advance-decline ratio: deteriorating across two weeks
Stocks above 200DMA: starting to roll over

The numbers are still net-positive. But the direction of the numbers has flipped.

So where IS strength rotating?

This is the part that actually matters. Markets do not just go down. They rotate.

Capital is leaving Defence and Power. Where is it going?

Four themes are showing up clearly in the Stage 2 pipeline.

Auto Ancillaries. 24 of the 70 listed names are now in growth phase. Ten of them moved into Stage 2 in just the last week.

NBFCs and Private Banks. BFSI as a combined theme is gaining real momentum. 50% of private banks are now in Stage 2. We flagged this theme about a month ago. It is still early.

Wires and Cables. This is the one we keep coming back to. RR Kabel, KEI Industries, Polycab. The sector’s RS rank has moved from 30 to 89 over the last few months. Not a flash in the pan. The reasoning is structural. India’s transformer and power distribution build-out needs a lot of cabling, and the order books reflect it.

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Recycling and Waste Management. Quieter, but interesting. 13 listed names. Some, like Ganesha Ecosphere and Pondy Oxides, are showing PEG ratios below 1 (this is not a recommendation, just where the data is pointing). The trend is cautiously upsloping with momentum accelerating.

Sectors losing strength: defence, power, mining and minerals, metals, energy, food and agri.

The rotation is happening. The question is whether you are watching it.

Two scenarios from here

We are at a fork.

Scenario 1. The market takes a healthy pullback now. Stretched breadth resets. New leaders emerge from the rotation we just walked through. The bull market resumes from a stronger footing.

Scenario 2. The market refuses to dip. Narrow leadership keeps grinding higher. Fewer and fewer stocks participate. Eventually, like 2024, the whole tape rolls over into a longer corrective phase because the rally got too thin to sustain itself.

Both are on the table. Earnings will decide which one plays out.

What the data won’t decide for us is what we do about it.

The honest take

Defence had a beautiful run. Many of you (including some friends I talk to) made very good money on it. That deserves to be acknowledged.

But the conditions that drove the last twelve months, momentum acceleration, expanding strength, a story the market hadn’t fully priced in, those conditions have changed.

Price is at all-time highs. Strength is correcting. Multiples are stretched. The broader market breadth is also stretched. And capital is rotating into newer themes.

This is the moment where most retail investors do the wrong thing. They confuse the story (which is still good) with the setup (which has changed). They keep adding at the top because the narrative is intact.

The narrative being intact is not the same as the trade being intact.

You can believe in India’s defence story for the next decade and recognize that today’s risk-reward in defence stocks is not what it was in May 2025. Both can be true.

What to do this week

If you hold defence: write down your exit plan. Not a vague “I’ll sell if it goes down”. An actual number, an actual level, an actual rule.

If you are looking for the next theme: track the rotation. Wires & Cables, BFSI, Recycling, Auto Ancillaries. Watch the Stage 2 pipeline.

If you are sitting in cash and waiting: you are not wrong. A stretched market with rolling-over breadth is not the moment to deploy aggressively. Patience is a position.

Run these screens yourself on Wealth Lab. Free trial → wealthlab.in

WealthLab

Until then.

Where are you allocated right now? Averaging up on defence, rotating, or sitting tight?

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Yours,
Saksham Ahuja
WealthLab

📺 “If you prefer the visual breakdown with the actual charts, here’s Episode 11 of The Lab Look Back.”

Link:

If this helped you think clearer about defence, send it to one friend who’s still adding at these levels.

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Disclaimer: The information contained in this newsletter is for general informational and educational purposes only and does not constitute investment advice, financial advice, trading advice, or any other sort of advice. The author is not a SEBI-registered investment advisor. All views expressed are personal opinions based on publicly available data. Past performance is not indicative of future results. Securities mentioned are for illustrative purposes only and should not be construed as recommendations to buy or sell. Readers should conduct their own research and consult with a qualified, SEBI-registered investment advisor before making any investment decisions. The author and WealthLab accept no liability for any loss or damage arising from reliance on the information presented herein.

"The art of being wise is the art of knowing what to overlook."
— William James

If you missed Part 1 (how to build your raw universe of ideas) or Part 2 (how to eliminate the bad ones before they cost you), find them linked at the bottom of this post. This one won’t make as much sense without them.

Here’s a problem most investors never admit they have.

They have a watchlist. A decent one, actually. 20, 30, maybe 40 stocks — all of which have passed some initial filter in their head. Good fundamentals. Decent chart. A story they believe in.

And then they freeze.

Because having 30 decent ideas is not the same as knowing which one to put your money into today.

This is where most frameworks fall apart. They’re great at teaching you how to find stocks. Nobody teaches you how to rank them. Which one goes first. Which one waits. Which one gets dropped entirely

We are not picking tips today. I know that’s what a lot of you are here for — just tell me the name, Saksham, I’ll do the rest. I understand. But if that were the right approach, we’d all be rich by now.

What we’re building instead is a repeatable system. Two filters that, when run on any shortlist, give you a rank-ordered buy list — 5 or 6 names that are mathematically worth the risk and sitting in the strongest part of the market. Every time. Regardless of market cycle.

Let’s go through them.

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Side Note:

If you are someone who likes to watch rather than read, just head over to this YT Video for this write up

Filter One: The Risk-to-Reward Test

Let’s start with the most important rule I know in markets.

For every rupee at risk, the potential reward must be at least 2 rupees.

That’s it. 1:2, minimum. No exceptions.

Minimum Risk-to-Reward = 1 : 2
If Risk = 5%, Target must be ≥ 10%
If Risk = 8%, Target must be ≥ 16%

Anything that cannot offer you this ratio — regardless of how good the story sounds, how clean the chart looks, how much conviction you have — gets cut. Directly. Without negotiation.

Now you might be thinking: that sounds harsh. What if the business is exceptional?

Here’s the math that should change your mind.

Suppose you’re an average investor. You get 50% of your trades right. You take 10 trades. On every winning trade, you make ₹20. On every losing trade, you lose ₹10. That’s a 1:2 ratio.

Five winners × ₹20 = ₹100. Five losers × ₹10 = ₹50.

Net: ₹50 profit.

With a 50% win rate. Average investor. Average skill.

Now flip it. Suppose your ratio is 1:1 — equal risk and reward. Same 50% win rate.

Five winners × ₹10 = ₹50. Five losers × ₹10 = ₹50.

Net: zero.

You worked hard, spent time, carried stress — and ended up exactly where you started. The math wasn’t against you. The math was simply not for you.

This is the brutal arithmetic of investing. The ratio matters more than the story. More than the chart pattern. More than the analyst report. If the math isn’t in your favour — the trade isn’t in your favour.

So how do you actually calculate the risk?

The risk is the distance between the current price and the closest relevant moving average.

Not a guess. Not a gut feel. A number.

Here’s why the moving average is the right anchor.

A 200-day moving average is the average price at which the stock has been bought or sold over the past 200 days. Think about what that means. Every buyer and seller over the last 200 days — the average of all of them — is embedded in that single line.

If the price is above the 200 DMA, the average participant of the last 200 days is in profit. They’re not panicking. They’re not selling. Demand holds.

If the price falls below the 200 DMA — that same average participant is now at a loss. Psychologically and technically, selling pressure builds. The thesis is being tested.

This is why the 200 DMA is not just a line on a chart. It’s the psychological line in the sand for the market’s collective participant over the last 200 trading days. (More people have skin in the game across 200 days than 50 — which is exactly why the 200 DMA carries more weight.)

Positional / Long-term investor (holds 3–6 months+):
Risk = Distance of price from 200 DMA

Swing trader (holds 3–6 weeks):
Risk = Distance of price from 50 DMA or 100 DMA 

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Filter Two: Sector Leadership

This one is more important than Filter One.

I’ll say that again, because it surprises people. Sector leadership matters more than risk-to-reward.

Why? Because a good sector will often give you a great risk-to-reward automatically.

The tide does the work. But a great stock in a weak sector? That’s swimming upstream. It’ll exhaust itself. Even if the fundamentals are pristine and the chart is technically clean — it is fighting the market’s current.

The tide lifts all boats.

Your job is to find the rising tide first — then pick your boat.

So how do we find the rising tide?

Here’s the exact process I use, using WealthLab’s Tracking feature. (I’ll walk through this in the video as well, with a live screen walkthrough — link here.)

Step 1: Import your shortlist into a WealthLab watchlist. All the stocks that have survived your earlier filters go in here

Visit WealthLab

Step 2: Open Tracking Analytics. On the left side, you’ll see your portfolio’s sector and industry breakdown. On the right side, you’ll see where the top 20% of the market (by relative strength) is currently concentrated.

Step 3: Find the overlap.

That overlap — the sectors that appear in both your watchlist and the market’s top 20% — is your priority zone. Those are the stocks you buy first.

When I ran this exercise on a 38-stock shortlist recently (broader than I’d normally run, just for illustration), the market’s strength was concentrated in:

• Metals

• Pharma formulations

• Power

• Steel

• Wires and cables

Of those, my watchlist had overlap in metals, pharma formulations, power, and wires and cables. Those four sectors became my priority zone. Everything outside that? It waits — no matter how good it looks on paper.

But wait — sooo many stocks in those sectors?? Which one to seeee???

That’s where the market cap filter comes in.

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The Market Cap Alignment Check

At any given time, the market favours a specific cap segment. Sometimes large caps lead. Sometimes mid caps. Sometimes small caps. It rotates — and this rotation is cyclical.

Back to WealthLab Tracking. The same analytics view shows you the market cap distribution of the top 20% of the market by relative strength.

Right now — for illustration purposes — the market’s top 20% is concentrated in mid cap and small cap. That means if your watchlist has large caps from the right sectors, they still move down the queue. We’re not fighting the market cap tide either.

Priority Stock = Right Sector + Right Market Cap + Passes 1:2 Risk-to-Reward

From my 38-stock shortlist, this combination narrowed things down considerably:

• Pharma formulations, mid cap → Natco Pharma (breaking out, clean chart, stage 2)

• Pharma formulations, small cap → Venus Remedies (26% return, 57 days into stage 2, distance from 50 DMA manageable)

• Pharma formulations, large cap → JB Chemicals (right sector, wrong market cap — moves down the list)

You see how the list sharpens itself. Not 38 ideas anymore. Not even 10.

5 or 6 names. That are mathematically worth the risk. That are swimming with the current.

That is your buy list.

What We Learned

We ran two filters on our shortlist.

Filter 1 — Risk-to-Reward: The distance to your preferred moving average is the risk. Your target must be at least 2x that number. Anything below 1:2 is cut, regardless of the story.

Filter 2 — Sector Leadership: Import your shortlist into WealthLab Tracking. Find where your portfolio overlaps with the market’s top 20% by relative strength. Then align by market cap. Buy from the intersection first.

When both filters agree — you have a trade worth taking.

When in doubt, always prefer stocks from the market’s leading sectors. Not the laggards. Not last cycle’s winners.

The tide lifts all boats. Make sure yours is in the right water.

What’s next?

Part 4 of the Investing Framework series covers the part most people are most impatient for — and also most likely to get wrong.

When exactly to enter.

Where to put the stop loss.

How to set targets.

That post goes out next Wednesday. If you’re not subscribed yet, now is the time. (WealthLab is free to subscribe — until it isn’t.)

Have a question about today’s framework? A stock you want to run through these filters? Drop it in the comments — I read every single one.

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If you want to watch the full live walkthrough — including the WealthLab Tracking demo in real time — the video version of this episode is on the WealthLab YouTube channel.

[ WATCH ON YOUTUBE → ] LINK

Where are you right now in your investing process — still building the watchlist, or already sitting on a shortlist you don’t know what to do with?

Yours, Saksham Ahuja — WealthLab

Disclaimer: This newsletter is published for educational and informational purposes only. Nothing contained herein constitutes financial, investment, legal, or tax advice, nor should it be construed as a solicitation or offer to buy or sell any security or financial instrument. The views expressed are solely those of the author and do not represent the views of any affiliated entity. Past performance of any security, market, or strategy discussed is not indicative of future results. All investments involve risk, including the possible loss of principal. The author is not a SEBI-registered investment advisor. Readers are strongly advised to consult a qualified, SEBI-registered investment advisor before making any investment decisions. Any stock or instrument mentioned is for illustrative purposes only and does not constitute a recommendation to buy, hold, or sell. The author may or may not hold positions in the securities discussed. This content is intended for Indian residents and is subject to applicable laws and regulations of India.

Part 1:

Part 2:

"In investing, what is comfortable is rarely profitable."
— Robert Arnott

The Indian Rupee just touched a new low against the US Dollar

And this isn’t the first time this month.

Most people saw the headline, felt a vague sense of dread, and scrolled past. Some panicked. A few didn’t even notice. But if you have a portfolio, even a simple one, this matters. Directly. Specifically. In rupees and paise.

This episode’s of The Lab Lookback is going to cut through the noise. We’ll cover what’s actually behind the fall, what it means for the sectors and stocks you’re likely holding, what the market did last week, and — most importantly — what we do next.

Grab your coffee. Let’s get into it.

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Side Note:

If you are someone who likes to watch rather than read, just head over to this YT Video for this write up

A Quick Word on Last Week's Call

Last week, I said this might be a good time to sit back. Don’t initiate. Don’t add new positions. Let the market breathe, consolidate a little, build some base.

Risk-to-reward for momentum trading? Simply not looking good.

If you followed that? You’re better off for it. This is not a market for heroes right now. It’s a market for people who operate on margin of safety — where capital is secure, and we’re not trying to be right, we’re trying to not be wrong.

Okay. Now let’s get started.

View Sector Leaders, Relative Strength Gainers, and Stage 2 Stocks now on Wealthlab.in

Visit WealthLab Analytics

Why Did the Rupee Fall? (Three Real Reasons)

Reason 1: Oil. Obviously. But There’s a Catch.

The US has blocked certain hormone states — key regions from where India sources its oil imports. Supply-side disruption. Oil prices spike. And since India imports the vast majority of its crude, the Rupee takes the hit.

Here’s the caveat most people are missing though.

When this last happened — during the Russia-Ukraine war — India’s current account deficit was significantly elevated. This time? It’s close to zero.

India’s balance sheet is in a fundamentally healthier place right now. We can sustain an oil price spike for longer, without it immediately translating into runaway inflation. That’s not nothing. That’s actually quite important.

Reason 2: FII Outflows — The Momentum Chasers Are Leaving

Foreign Institutional Investors are pulling money out of India and putting it elsewhere.

Why? Because Indian market returns have been flat — and valuations, particularly in the mid and small-cap segment, are still elevated. The listed space hasn’t fully corrected to a point where these investors see obvious upside.

Here’s how I think about this.

The majority of global investors — institutional or otherwise — are momentum chasers. They come in when returns are strong. They leave when the momentum fades and the waiting period gets long. They don’t wait through valuation cycles. They don’t have the patience.

So when you see FII outflows and wonder why India is being “abandoned” — it’s not abandonment. It’s impatience.

Reason 3: The Fed Just Killed the Rate Cut Dream

The US Federal Reserve met recently and sent a clear message: no rate cuts are coming.

US interest rates are already high. If they’re staying high, that’s a strong magnet pulling global capital toward dollar-denominated assets. Money flows to where it earns more, safely. Right now, that’s the US.

Three forces. All pressing in the same direction. The Rupee goes down.

Now — the more important question.

How Does This Hit Your Portfolio?

IT Companies: The Hidden Beneficiary

India’s biggest source of dollar remittances? Indian IT companies.

They sell services and products in the US, in dollars. That dollar revenue then comes back to India. When the Rupee depreciates, that conversion gives them more rupees for the same dollar revenue.

Result: higher reported profits, stronger balance sheets.

(There is a separate — and very real — debate about whether Indian IT can compete with AI eating into traditional services. I’ll do a dedicated video on that. Not the point right now.)

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Oil Marketing Companies: The Squeeze

BPCL, HPCL — companies that buy crude oil in dollars but sell refined fuel in India in rupees, at a fixed price.

When the Rupee weakens, their input cost (crude in dollars) goes up. But their selling price? Fixed. Margins get squeezed.

The government does give them a subsidy to compensate — but here’s the thing about that subsidy: it doesn’t arrive every year. It comes in lump sum settlements, every two or three years. So if you’re looking at BPCL or HPCL’s balance sheet and wondering why EPS seems to jump dramatically in certain years — that’s why. An extraordinary income hit from the government, once every settlement cycle.

Import-Oriented Companies: The Margin Problem

If a company you’ve invested in imports raw materials and sells in India — their input costs just went up. They can’t pass it all on immediately. Margins take a hit.

Revenue might hold. Profit won’t.

This is the one to watch carefully in your portfolio. Run through your holdings and ask: is this company primarily an importer? If yes — factor in a compressed margin quarter ahead.

Market Snapshot: What Actually Happened Last Week

The Nifty moved. But barely.

What’s more interesting is what happened underneath the surface.

Since the market bottomed in early April, we’ve seen a stepped-up move — sharp and quick. And here’s the thing: those early legs of a rally are typically longer. The more recent legs? Shorter. Even shorter than that. In swing trading, this is textbook exhaustion. The move is running out of fuel.

We also saw a reversal signal emerge.

Data via WealthLab

I’ll be direct: I’m quite confident we’ll see some correction in small and midcaps.

Large caps?

They might not correct much. Small and midcaps? They look over-extended, and they look like they might just come back to the mean.

Market Breadth: The Number Everyone Should Be Watching

Market breadth tells you how many stocks are actually participating in the move.

Last week, the percentage of stocks trading above their 50-day moving average was sitting at 70%. Sounds healthy, right?

It’s not.

70% means roughly three-fourths of the traded market is above the 50 DMA. That level is simply not sustainable.

The ideal healthy zone is around 50-55%. When three-fourths of the market is already elevated, there’s very little room for new buyers to enter at attractive levels.

Here’s the cascade that plays out: when the market starts to correct from here, the stocks that pull that breadth number lower will be the small and midcaps. Large caps will take a smaller hit. Small and midcaps take the biggest.

Net new highs also declined compared to last week. Fewer stocks are making new highs. Exhaustion on the top. This warrants caution.

My outlook: I think we’re looking at another week of flat-to-negative returns on the Nifty.

That’s my take. I could be wrong. I am still not initiating any new positions this week.

Stage 2 Pipeline: Where the Momentum Is Moving

Despite the caution on the broader market, there are pockets where the setup is interesting.

Net 18 stocks entered Stage 2 (Weinstein methodology — for those unfamiliar, Stage 2 is where institutional buying picks up and price begins a sustained uptrend).

Two sectors worth noting:

Data Centres

Two out of nine data centre stocks have now entered Stage 2. Companies like B-Box (Black Box) are showing up — trading near all-time highs, strong relative strength. The space is crowded in terms of narrative — everyone is talking about data centres — which is exactly why we need to be selective. I’ll still avoid the ones that are purely hype. But momentum is clearly flowing into this segment.

Private Banks

Three private banks have moved into Stage 2. IndusInd Bank is one to watch — we’re currently trading near lows on the chart. The setup here is interesting both from a Stage 2 and a valuation angle. South Indian Bank is another that has cleared into Stage 2 territory.

This is the rare combination that value investors and momentum investors can both get behind (I know, unusual).

Sector Rotation: Who’s Strong, Who’s Fading

Using relative strength as our lens — where is money rotating?

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Holding up well:

• Defence — relative strength is still intact, even as the sector paused on price

• Power and cables — moved from rank 11 into the top tier in a single week

• Private Banks — as mentioned, getting interesting

Starting to fade:

• Metals and Mining — six months of strong relative returns, now starting to correct. Coal India and a couple of mining names are the main holdouts, but the broader sector is softening.

• Auto — seeing a pullback in relative strength

Worth watching but not yet:

• Contract Manufacturing — showed up as a rank 1 mover this week, but I’m not adding positions yet. I want another week to confirm whether this is sustained momentum or a dead-cat bounce. One more week to see how it plays out.

The Week Ahead: My Honest Outlook

Market is extended. Small and midcap exhaustion is visible. Breadth is elevated but declining. Net new highs falling.

I’m not initiating new positions this week.

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If the market surprises by shooting up — I’ll look to trim some of my already-extended positions where I’ve captured significant returns. I won’t chase.

If we correct, as I expect — I’ll be patient. Capital protection is the priority in this phase.

The stocks to watch for new entries next week: Private banks (IndusInd, South Indian Bank), Data Centre names with confirmed Stage 2 setups.

The One-Line Summary (For Those Who Skimmed)

The Rupee fell because of oil disruption, FII outflows, and the Fed. IT benefits. OMCs suffer. Import-heavy businesses face margin pressure. Market is over-extended and likely to correct, especially in small and midcaps. Private Banks and Data Centres are where Stage 2 momentum is building. No new positions this week.

Where are you positioned right now? Are you sitting in mostly large caps or do you have significant small/midcap exposure? Drop your thoughts in the comments — I read all of them.

The next Live Lookback will be out on Saturday as always, with a completely fresh look at how the week played out. Do not miss it.

Not subscribed yet? WealthLab is free to subscribe (until it isn’t).

Yours, Saksham Ahuja — WealthLab

Disclaimer: This newsletter is for educational and informational purposes only and does not constitute investment advice, financial planning, or a recommendation to buy or sell any financial instrument or security. The views expressed are personal opinions based on publicly available information and are subject to change without notice. I am not a SEBI-registered Investment Advisor. Past performance is not indicative of future results. Investing in equities involves risk, including the possible loss of principal. Readers are advised to conduct their own due diligence and consult a qualified financial advisor or SEBI-registered Investment Advisor before making any investment decisions. WealthLab and its author accept no responsibility for any loss or damage arising from the use of this content.

Disclaimer: This post is for educational purposes only. It is not investment advice or a recommendation to buy or sell any securities. I am not a SEBI-registered investment advisor. Please consult your RIA before putting in your hard-earned money.

Getting Ideas is the Easy Part

I’ve talked before about how there are dozens of legitimate ways to build a watchlist.

Screen for volume breakouts. Follow institutional activity. Read the right sectoral reports. Do it right, and you’ll have 60, maybe 80 names in front of you within a week.

And then you’re stuck.

Because all of them look good. That’s the problem. They’ve all passed the first cut — which means they’ve all earned their spot on the list. So now what?

How do you actually decide?

Side Note:

If you are someone who likes to watch rather than read, just head over to this YT Video for this write up

Think about the last time you went shopping for t-shirts. You liked 10 of them. You can’t buy all 10 — so you start thinking about which ones you definitely don’t want.

Which ones, if you left the store without them, you wouldn’t even notice? That’s elimination. And that’s exactly the principle we apply here.

Not “which stock is best.” But “which stocks can I afford to ignore — and why?”

The difference matters. One approach is optimistic and fuzzy. The other is scientific and fast.

The Central Idea (Before We Get Into the Filters)

A growing stock only gives you the returns its future earnings justify.

That’s it. That’s the whole game.

If earnings per share grow 20%, the stock moves roughly 20% over time. If EPS grows 100%, you get 100%. The market — specifically, institutional money — prices what it believes future cash flows look like. And when those beliefs change, prices follow.

So our job isn’t to find “good companies.” Our job is to find companies where:

1. The growth story is still intact — and accelerating

2. The business quality is high enough that institutions don’t want to sell

3. The market hasn’t already priced in everything — leaving us no room

With that frame in mind, here are the four filters.

Filter 1: EPS Growth — Not Just High, But Accelerating

The first episode of this series talked about looking for EPS growth above 20%. That’s the entry requirement. But this episode is about the next question: what’s the trend?

Is EPS growth going from 20% → 30% → 40%?

Or from 40% → 30% → 20%?

Those are two completely different situations.

When EPS is accelerating, the story is improving. Institutions see it, model it, and buy more. More buying = more demand = price follows upward.

Apple’s iPhone launch years are the textbook example — each quarter better than the last, each quarter pulling in more institutional conviction.

When EPS decelerates — say from 50% to 30% — the market reads it as a ceiling. People start wondering: is this as good as it gets? Institutions start reducing. Price stalls or reverses.

The rule is simple: stay in the stock while EPS momentum is intact. The moment it breaks, the price momentum will follow — usually with a lag that punishes you if you’re slow.

EPS growth needs to be high. And it needs to be increasing. Both.

If you’re finding this useful, consider sharing it with one person who you think would benefit. It takes 10 seconds and means a lot — WealthLab is free to subscribe (until it isn’t).

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Filter 2: ROE Above 15% — And What It Actually Signals

ROE (Return on Equity) is the profit earned for every ₹100 of shareholder capital deployed in the business.

A company worth ₹1,000 crore in equity that earns ₹150 crore in profit has a 15% ROE.

Why does this matter for elimination?

Because in India, P2P lending or even a simple debt instrument will give you 12% per annum with essentially no effort. If a business can’t beat that threshold with its own capital — why would any serious institutional investor park money there? They wouldn’t. And if they won’t, the stock won’t move.

We want a minimum of 15%. TCS is around 47–50%. Maharashtra Bank is around 22–23%. These are businesses where the management is actually compounding capital efficiently. When negative news hits, institutions don’t panic-sell these. When positive catalysts appear, they add more.

That stickiness is what gives a stock its consistent upward bias.

ROE below 15%? Gone. No further analysis needed.

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Filter 3: Operating Profit Margins — the Real Quality Test

This one tells you whether the growth is efficient or expensive.

Say a company sells ₹100 worth of product every quarter — flat revenue, no growth. But they’ve been quietly cutting costs, improving machinery, using better processes. OPM goes from 15% → 17% → 20% across three quarters.

Same ₹100 in revenue. But now they’re making ₹20 of profit instead of ₹15.

Now imagine that same company suddenly gets a revenue catalyst — they start selling ₹150 instead of ₹100. At 20% OPM, that’s ₹30 in profit. At the old 15% OPM, it would’ve been ₹22.

Higher margins mean any revenue growth becomes dramatically more profitable. More profit attracts more investors. More investors drive the price higher.

Falling margins tell the opposite story: they’re buying growth by spending more and more to generate it. That’s not sustainable, and the market eventually figures it out.

Margins going up = quality and pricing power. Margins going down = eliminate.

Filter 4: PE vs. EPS Growth (The PEG Ratio — The One Most People Get Wrong)

This is the filter where I see the most mistakes — including ones I made early on.

The PEG ratio is just:

PEG = Price-to-Earnings Ratio ÷ EPS Growth Rate

If a stock has a PE of 40 and EPS growth of 40%, the PEG is 1. The market is pricing the stock exactly at its growth rate. No cushion.

What happens when the next quarter comes in at 25% instead of 40%? The market re-rates the stock from PE 40 down to PE 25. That’s a violent compression — even though the company is still growing. You just had zero margin of safety.

What we want: PEG at or below 1.

That means either the PE is lower than the growth rate, or the growth rate is high enough that even the current PE is cheap relative to it. This gives us room. If the next quarter slightly disappoints, the stock doesn’t crater — there’s buffer built in.

PEG above 1? The market is pricing in perfection. Eliminate — or at least deprioritize.

Putting It Together — Live on TradingView

(Watch the Video for More)

Let me show you how fast this actually works in practice.

Mahabank: EPS growth 7% → 15% → 27% → 36%. Accelerating. ✓ ROE above 15%. ✓ OPM increasing. ✓ PEG well below 1. ✓ — Keep.

Emcure: EPS growth 37% → 24% → 50%. Increasing. ✓ ROE above 15%. ✓ OPM 13% → 14% → 15%, trending up. ✓ PEG around 0.8 on average. ✓ — Keep.

Centum: ROE below 15%. OPM is all over the place — 107 one quarter, something else the next. PE negative. Multiple violations in one glance. — Remove.

MWL (Mangalam Worldwide): EPS growth 48% → 33% → 74%. ROE above 15%. OPM increasing. PEG 22 ÷ 74 = 0.3. — Keep. (Amazing right? That PEG is exceptional.)

BF (name withheld): EPS declining — 22% → 36% → 20% → 22%, no clear acceleration. ROE below 15%. OPM not growing. PEG of 4. — Remove. Every single filter violated.

Each of these took 2–3 minutes. The whole 60-stock list? Under 30 minutes.

What You’re Left With

After running all four filters, you go from a broad watchlist of 60–80 names down to 10–15 high-conviction candidates. No balance sheet required. No complex financial modelling. Just four questions, asked consistently, applied fast.

The four filters again:

1. EPS growth accelerating — story is improving

2. ROE greater than 15% — quality business worth holding

3. Operating profit margins rising — growth is efficient

4. PEG at or below 1 — enough margin of safety to sleep at night

Found this useful? Hit the like button below, or drop a comment telling me which filter surprised you most. It genuinely helps more people find this.

And if you want to know the exact TradingView indicator I use to see all four metrics in one panel — comment “indicator” below and I’ll reply with the name.

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