Stock market crash: History suggests 14,500 could be a bottom for Nifty, says CLSA

NEW DELHI: The market is slowly going down. The decline that began in October of last year has now completed seven months, and the data suggests that it could be one of the slower paths into bear market territory.

To be precise, the benchmark indices have not yet entered bear market territory, which happens after a 20 percent drop, but it is very possible that they will. Nifty is currently about 14 percent below its all-time highs.

The data shows that the seven-month drop already made it the seventh longest drop of the 19 corrections of more than 10 percent we have seen on Nifty in the last 30 years, the CLSA said in a report.

“In the previous six longest declines, the first seven-month lows amounted to a median two-thirds of the eventual price damage. Overlaying this would give a target of 14,500 for Nifty, ie a 21 per cent drop from the top with the 12-month PE falling close to its 16x average,” the trader said. “So far, this is also a rare case where Nifty has clearly outperformed EM and not outperformed the US during a dip.”

As of mid-May 2022, the low of the current correction, the Nifty Index is down 14.6% in seven months from a high of 18,604.45. The data shows that although this correction does not yet qualify as a bear market and the price drop is close to the median of bull market pullbacks, its duration in days is four times longer than the average duration of the nine bull market pullbacks. and is twice the longest recoil. -back view mid 2019.

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Typically, on pullbacks, the time correction is much lower and a longer time correction occurs during a bear market sell-off. CLSA said that Indian markets have seen only six corrections that have taken longer to form a bottom and all of these were much deeper declines from 23 to 60 percent that took 10 to 27 months. None of the previous declines have been as gradual as the current one, she said.

Superior market strength
Another feature of the ongoing decline is that Nifty has not underperformed its global peers. This is unlike most other descents in the past. In 16 of the 18 dips over the past 30 years, the Nifty underperformed the S&P 500 relative to the top to bottom of the Nifty dip. This is the second time, other than 2018, that performance has been nearly neutral relative to the S&P-500 Index. Similarly, the Nifty has underperformed emerging market and Asia-ex benchmarks in 14 of 18 previous falls.

“It appears that the current strength of domestic inflows is much greater than any previous decline. This has limited price damage despite record FII outflows,” CLSA said.

(Disclaimer: The recommendations, suggestions, points of view and opinions given by the experts are their own. These do not represent the views of the Economic Times.)

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