Nifty 50 Surges Above 22,000: Why Axis Securities Believes the Index is Near Its Bottom
Indian Markets Rebound Amid Global Uncertainty
Nifty 50 Surges : Indian stock markets made a strong recovery on Wednesday, March 5, bouncing back after a 10-day losing streak. The Nifty 50, which had been under pressure due to global trade tensions and foreign investor outflows, surged over 300 points to reach 22,395. The BSE Sensex also saw a significant jump of over 900 points, hitting an intraday high of 73,934.
Despite this rebound, the markets have been on a downward trajectory for the past five months, with the Nifty 50 slipping nearly 15% from its peak of 26,277 in September 2024. This correction is the second-largest decline since the COVID-19 crash in March 2020 and the sixth-largest drop since the 2008 financial crisis.
However, according to Axis Securities, the current market scenario may indicate that Nifty 50 is approaching its bottom, setting the stage for a potential recovery.
Historical Patterns Suggest a Market Bottom
Axis Securities highlighted that prolonged downtrends like this have been rare in Indian market history. The last comparable instance occurred in 1996 when the Nifty 50 witnessed a sharp decline of 26% over five months. Despite further losses in December of that year, the index eventually rebounded, forming a bullish “piercing line” candlestick pattern. This led to an eight-month rally, pushing Nifty up by 67% by August 1997.
Interestingly, history suggests that extreme pessimism and fear often precede a market bottom. The ongoing correction has placed the index in a historically strong demand zone, which has previously acted as a launching pad for new rallies.
Technical Indicators Signal a Possible Reversal
Several key technical indicators reinforce the possibility that the Nifty 50 is near its bottom:
- 100-Week Moving Average Support
- The Nifty is currently trading in a crucial support range defined by its 100-week Moving Average Envelope (+/-3%). Historically, this level has provided a strong floor for market corrections, barring exceptional events like the COVID-19 crash.
- Oversold RSI Levels
- The 14-week Relative Strength Index (RSI) has entered the “bull market” oversold zone (33-40). Axis Securities noted that in 87% of past cases, such conditions have led to a market bottom and a subsequent rally.
- Fibonacci Retracement Support
- The index is currently hovering around the key Fibonacci retracement levels in the 21,800–22,000 range, suggesting a strong demand zone.
- Extreme Breadth Readings
- Market breadth indicators for the NSE500 are at historically low levels, with only a small percentage of stocks trading above their 50-day, 100-day, and 200-day moving averages. Such extreme readings have historically preceded major market bottoms.
Investor Sentiment: Fear and Pessimism Could Mark a Turning Point
Investor sentiment is currently at an extreme low, with many fearing further market declines. However, Axis Securities suggests that such deep pessimism often creates opportunities for long-term investors.
The firm recommends investors to start accumulating stocks within the 21,700 – 22,000 range, emphasizing that past market recoveries have been driven by buying activity in periods of heightened fear.
March: A Historically Strong Month for Markets
Looking at historical data, March has been one of the best-performing months for Indian markets.
- Since the 2009 financial crisis, March has delivered an average gain of 1.7%, rising to 3.4% when excluding the extreme COVID-related drop in 2023.
- Past market recoveries have frequently begun in March, April, or May, adding to the case that the Nifty 50 may find a bottom soon.
Market Corrections: How Does This One Compare?
Axis Securities analyzed previous market corrections and found that since 2001, there have been 10 instances where the Nifty 50 fell by more than 16%.
- Two corrections were under 20%
- Three ranged between 20-30%
- Five corrections exceeded 30%
While past data isn’t always predictive, the fact that Nifty is near key technical and historical support levels suggests that this correction could be nearing its end.
Financial Ratios: Evaluating Market Valuations
| Financial Metric | Current Value | Historical Average | Remarks |
|---|---|---|---|
| Nifty 50 P/E Ratio | 19.5x | 21.0x | Below historical average, indicating undervaluation |
| Nifty 50 P/B Ratio | 3.1x | 3.6x | Near long-term support levels |
| Dividend Yield | 1.4% | 1.2% | Slightly above average, showing better income potential |
| Nifty 50 EPS Growth (YoY) | 10.2% | 12.5% | Earnings growth slightly below trend |
| Market Cap to GDP Ratio | 85% | 95% | Below historical peak, indicating potential upside |
Final Thoughts: Is This the Time to Invest?
While uncertainties remain, historical trends and technical indicators suggest that the Nifty 50 may be approaching its bottom. Axis Securities remains optimistic that investors who accumulate stocks in the 21,700-22,000 range could see significant gains once the market recovers.
With March historically being a strong month for the markets, and the Nifty 50 testing crucial support levels, the coming weeks could provide clarity on whether the index is set for a sustained rebound.
For investors looking to capitalize on this market phase, staying patient, following technical levels, and focusing on fundamentally strong stocks could be key strategies for success.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.