Indian stock market appears to be approaching a medium-term bottom, as indicated by historical trends, technical indicators, and sectoral valuations, according to Axis Securities’ latest India Equities Exclusive Report.
Key Market Observations
Despite the absence of a clear bullish trigger, the report suggests that valuations across various sectors are now below their one-year and five-year averages, signaling potential long-term investment opportunities.
The Nifty 50 index has seen a sharp decline of nearly 16% from its peak of 26,277 in September 2024, making it the sixth-largest correction since the 2008-09 Great Recession and the second-largest drop since the Covid-led crash of March 2020.
This five-month downtrend, last witnessed in November 1996, has raised concerns about a possible bear market. However, Axis Securities believes that such corrections often lead to strong rebounds.
Critical Support Zone & Historical Trends
The Nifty 50 is currently testing a critical support zone, defined by the 100-week Moving Average Envelope (+/-3%), which has historically acted as a floor for market declines—except in extreme events like the Covid crash. This suggests that the market could be close to forming a durable bottom.
Historical data also reveals that March has been a strong month for market recoveries, with an average gain of 1.7% since 2009 (excluding the 2023 anomaly). Additionally, the Nifty has never recorded six consecutive months of declines, which further strengthens the case for a potential rebound.
Investment Strategy & Market Sentiment
Given the current market conditions, Axis Securities advises investors to consider allocating long-term capital when the Nifty falls within the 21,700-22,000 range. While it is challenging to catch the exact top or bottom, prudent investing involves recognizing opportunities when market sentiment is highly pessimistic.
The report highlights that several signs—such as extreme pessimism, investor fear, skepticism towards equity investments, and a shift from bullish excesses to bearish sentiment—often appear before a durable bottom forms.
Final Takeaway
Axis Securities recommends that investors wait for confirmation of a recovery before taking aggressive positions but acknowledges that the current correction presents a favorable long-term entry point.
With historical patterns, technical indicators, and sectoral valuations aligning, the Indian stock market could be nearing the end of its downtrend, making it an opportune time for strategic investors.
