Key Points
Market nearing medium-term bottom with attractive valuation opportunities
Nifty 50 index shows significant 16% decline since September
Historical patterns suggest potential market recovery in March
Technical indicators point to possible investment entry point
Therefore, "we would advise investors to allocate some long-term money between 21,700-22,000", said Axis Securities in its 'India Equities Exclusive Report'.
"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," the report mentioned.
Valuations across sectors are below their one-year and five-year averages, indicating pockets of potential opportunities for long-term investors.
The Nifty 50 index has experienced a significant decline of around 16 per cent from its September 2024 peak of 26,277, marking the sixth-largest drop since the 2008-2009 Great Recession and the second-largest since the Covid-led crash in March 2020.
This five-month downtrend, last seen in November 1996, has raised concerns about a potential bear market.
The Nifty has entered a critical support zone defined by the 100-week Moving Average Envelope (+/-3 per cent), which has historically contained declines except during extreme events like the Covid crash. This suggests proximity to some sort of a durable bottom.
"Historical patterns suggest that extreme breadth readings often precede market bottoms, but investors should wait for confirmation of a recovery before taking positions," said the report.
March has historically been a strong month for market recoveries, with an average gain of 1.7 per cent since 2009 (excluding the 2023 outlier plunge). The Nifty has never recorded six consecutive months of declining prices in history, suggesting a potential rebound.
"We are observing things that almost always occur close to a durable bottom - excessive pessimism, palpable fear, questioning the very rationale of investing in equities even for the long-term and a shift from upside excesses to the downside, not to mention social media memes," the Axis Securities report mentioned.
