The Indian equity markets are on their longest losing streak in two years, but if historical data is any indication, a possible rebound is imminent in the near future, research done by experts show.
According to SAMCO Securities, the Nifty 50 has witnessed 17 instances of seven or more consecutive declining sessions since 2012. Data indicates that after such prolonged losing streaks, the index has shown an average positive return of 1.6 per cent in the following week, with returns extending to 1.8 per cent over a one-month period.
This Friday, the benchmark indices, the BSE Sensex and Nifty 50, closed lower for the eighth consecutive session in their longest losing streak in two year. The Sensex closed at 75,939.21, down 199.76 points or 0.26 per cent, while the Nifty 50 fell 102.15 points or 0.44 per cent to end at 22,929.25.
“While it is difficult to pinpoint an exact bottom, historical data suggests that prolonged losing streaks in the Nifty 50 have often led to short-term rebounds,” says Siddhesh Mehta, Research Analyst at SAMCO Securities. “The immediate support for Nifty 50 is placed in the 22,600-22,550 zone. A breach of this zone could accelerate downside momentum. On the upside, resistance levels are observed at 23,550 and 23,800, where supply pressure could limit any potential recovery.”
The current market correction has hit the broader markets more severely than the benchmark indices. The Nifty Small-cap 100 has declined by 9.41 per cent and the Nifty Mid-cap 100 by 7.38 per cent over the past week, significantly underperforming the Nifty 50’s 2.68 per cent decline.
“The data shows that the one-week forward return tends to stabilize in the following weeks, with no significant acceleration in gains. This implies that while a recovery is probable, sustained upward momentum may require additional positive triggers to drive a sharper rally,” Mehta adds.
Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, offers a cautiously optimistic view: “Markets are going to be very range-bound for the next two months because all the major events are done through. The earning season has been lukewarm with no negative surprises, but also no blockbuster positive surprises.”
Technical indicators
Technical indicators suggest potential support levels. “Whenever Nifty touches the 200-day moving average, we have witnessed a strong rebound. There is strong liquidity in the market that is helping it sail through this level,” Bathini explains.
The market’s behaviour is being influenced by global factors, particularly as emerging markets face volatility. “The global market impact is going to be on Indian markets. We’re talking about decoupling, but it’s not so. The global markets would influence Indian markets,” adds Bathini.
Foreign Portfolio Investors (FPIs) are watching the market closely. “Long-only funds have been waiting to invest in India. What they’re waiting for is just some kind of fairness in the valuation,” notes Bathini.
Sector-specific impacts
Looking at sector-specific impacts, small and mid-cap stocks have demonstrated higher volatility. “Normally, the small caps and mid caps are perceived as high beta in nature. If the market is falling by 1 per cent, the small and mid-caps will fall 1.5 per cent to 2.5 per cent,” Bathini explains.
The current market scenario presents what analysts term as a correction rather than a crash. Over the past 18-24 months, the Nifty has maintained a broad trading range between 22,000 and 26,000. With Q4 results approaching and global economic conditions remaining uncertain, market participants closely monitor various indicators for signs of a potential reversal in the current downward trend.
Historical patterns suggest an 88 per cent probability of a rebound in the coming week, based on SAMCO Securities’ analysis of similar losing streaks since 2012. However, analysts emphasise that external risks and structural headwinds cannot be overlooked in the current market environment.
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