Nifty Crashed 16% From Sept Peak, Marking 6th Biggest Drop Since Recession; Is March Bullish Month?

The Indian stock market continues to trade under pressure on Tuesday, with the Nifty 50 erasing its 22,000 pivotal points and hitting an intraday low of 21,964.60. From this level, Nifty has crashed by over 16% against the September 2024 peak levels, making it the sixth-biggest drop since the 2008 Great Recession and the second-largest decline since the Covid-led crash of 2020. Relentless FII selling, weakening of the rupee, global uncertainties and lack of bullish influence, have kept the Indian stock market at the edge of jittery. Year-to-date, Sensex and Nifty have declined by 7% each. However, brokerage Axis Securities believes that March is generally the month of market recovery, as per past performances.

On March 4th, Sensex slipped to an intraday low of 72,633.54, while Nifty 50 plunged to hit the day's low of 21,964.60. Year-to-date, Sensex is down by 5,564.32 points or 7.09%, while Nifty nosedived by 1,668.55 points or 7.03% from current levels. Both benchmarks are struggling to hold the 73,000 and 22,000 zones at the moment.

Year-to-date, all sectoral indices have performed in deep red with the IT index down 14% and the media index plummeting over 34% which is its worst performance. However, although down by 2% and 10% broadly, both financial services and banking stocks have shown signs of resilience.

Additionally, six out of eleven sectors have recorded an overselling scenario, while all sectors are below their 200-day moving averages.

Compared to the all-time high level of 26,277.35 that was recorded in late-September 2024, Nifty has nosedived by 4,312.75 points or 16.4%.

The 16% drop from peak levels, as per Axis Securities, marks the sixth-largest drop since the 2008-2009 Great Recession and the second-largest since the Covid-led crash in March 2020.

Notably, market has been bearish since October last year, making it the five-month downtrend, which was last seen in November 1996. The brokerage believes that this has raised concerns about a potential bear market.

What happened the last time something like this was seen? Here are some summary statistics as per Axis Securities:

- In 1996, the Nifty sank ~26% over five months, and another 6.6% in December to mark the final low

- It then recovered to close the month ~16% higher from the low point

- The rebound traced a monthly "piercing line" candlestick pattern, which triggered an 8-month, 67% advance from the trough to the next important swing high, seen in August '97

- That said, this rally was not without its share of volatility, as the month of March '97 saw a 17% drop from the high to the low

Axis Securities added, "Looking at the last decade of data, we can see that the 2016 low was the start of a major bull run. The advance that began here and culminated at the record peak last year saw many corrections along the way. What's notable is that except for the COVID-19-led crash, all other declines were contained by a Moving Average Envelope (100 weeks, +/-3%). Unless this decline is similar to an "unknown unknown" such as the pandemic, there is ample evidence to believe - now that we have entered the envelope - that we are closer to a medium-term bottom. All we need is a bullish trigger, price-wise. For now, that has proved elusive."

Also, the breadth measures for the NSE500 index are at extreme lows with about 7.6%, 6.2%, and 10.1% of stocks trading above their 50-, 100-, and 200-day moving averages, respectively. Hence, the brokerage believes these levels are comparable to those seen during the Covid crash.

However, going further back to the days of the GFC lows of '08, Axis Securities noticed that the 14-week Relative Strength Index (RSI) bottomed in the 33-40 area (green zone) on nearly every correction within the larger bull market. In the 14 instances, it got "bull market oversold", a staggering 87% of the time the market formed a trough and eventually rose to a new 52-week high. As we speak, the current drop has dragged the oscillator down into the lower end of this area."

It added, "Based on the past, we'd say the odds of a rally attempt from here are materially high."

Also, the brokerage pointed out that valuations across sectors are below their one-year and five-year averages, indicating pockets of potential opportunities for long-term investors. However, it added, that years of historical patterns suggest that extreme breadth readings often precede market bottoms, but investors should wait for confirmation of a recovery before taking positions.

Thereby, Axis Securities believes that March is the best month for market recovery!

March Effect On Market:

According to the brokerage, during the 2009 recession, the month of March averaged a gain of 1.7%. If one excludes the 2023 drop of 23.2% as an outlier, the average return improves to 3.4% (median = 3.3%), with only four down instances in 11.

Hence, this makes March the best month of the year and a likely candidate for the first up month in six (note that the Nifty has never been down six straight months, while the Sensex saw the last such downdraft in April '95), it said.

Furthermore, Axis Securities said, "Since 2001, there have been a total of 10 declines exceeding the size of the current drop (~16%). Two were less than 20%, three were drops between 20% & 30% and the rest exceeded 30%. More importantly, June has seen two bear markets bottom out while March, April and May have halted one bear market each. Although this evidence is inconclusive, given that we are at important support, March still has a chance of at least stalling the decline."

In conclusion, Axis Securities said, while a clear bullish trigger is yet to emerge (this is critical), historical patterns, technical indicators, and sectoral valuations suggest that the market is nearing a medium-term bottom. Therefore, the brokerage advise investors to allocate some long-term money between 21700 - 22000. It said, "While most of us can't catch the exact top and bottom, prudent investing is about cashing in on opportunities, especially when sentiment is so one-sided. One such opportunity is now."