Nifty 50 above 22,000: Why Axis Securities believes the index is near its bottom | Stock Market News

Indian markets rebounded on Wednesday, March 5, tracking gains in Asian peers after the Nifty extended its longest losing streak in three decades on Tuesday. The recent downturn was driven by escalating global trade tensions following U.S. President Donald Trump’s tariff rollout on key trading partners.

The benchmark BSE Sensex surged over 900 points in intraday to hit the day’s high of 73,934, while Nifty 50 rallied over 300 points to 22,395. 

Before Wednesday’s recovery, Indian markets had been in the red for 10 consecutive sessions, fueling concerns about the onset of a bear market. Negative sentiment was further exacerbated by sustained foreign investor outflows and weak earnings growth in the December quarter.

Market Overview

Despite today’s rise, the Nifty 50 index has witnessed a substantial decline of approximately 15 per cent from its September 2024 peak of 26,277. Axis Securities noted that this marks the sixth-largest drop since the 2008-2009 Great Recession and the second-largest correction since the Covid-induced market crash in March 2020. 

The index has remained in a downtrend for the past five months, a pattern last observed in November 1996, raising concerns about the potential onset of a bear market.

Historical Trend

The brokerage highlighted that the last comparable instance occurred in 1996, when the Nifty dropped 26 per cent over a five-month-period, followed by an additional 6.6 per cent decline in December. However, the index subsequently rebounded, closing the month 16 per cent higher than its lowest point. The recovery formed a monthly “piercing line” candlestick pattern, which led to an eight-month rally of 67 per cent, reaching a new swing high in August 1997. The firm also noted that volatility was present during the recovery, as March 1997 saw a 17 per cent drop from its high to low.

Why Axis Securities believes Nifty 50 is near bottom

Technical indicators suggest proximity to bottom

Axis Securities pointed out that the Nifty has now entered a crucial support zone defined by the 100-week Moving Average Envelope (+/-3%), which has historically served as a floor during corrections, barring extreme events like the COVID-19 crash. Additionally, the 14-week Relative Strength Index (RSI) has entered the oversold “bull market” zone (33-40), a level that has historically resulted in a market trough and subsequent rally in 87 per cent of cases.

Furthermore, the index is currently testing the lower boundary of a parallel channel that originated from the late 2021 peak. Fibonacci retracement levels align within the 21,800–22,000 range, indicating a potential demand zone. 

Breadth indicators for the NSE500 index are at extreme lows, with only 7.6 per cent, 6.2 per cent, and 10.1 per cent of stocks trading above their 50-, 100-, and 200-day moving averages, respectively—levels last seen during the COVID crash. Axis Securities noted that extreme breadth readings often precede market bottoms, though confirmation of a recovery is needed before taking positions.

Extreme pessimism & fear precede durable bottoms

According to Axis Securities, the market is currently characterized by excessive pessimism and fear, which often serve as precursors to a durable bottom. While a clear bullish trigger has yet to emerge, historical patterns, technical indicators, and sectoral valuations suggest that the market is nearing a medium-term bottom. 

The firm advised investors to allocate capital within the 21,700 – 22,000 range, emphasising that prudent investing focuses on seizing opportunities when sentiment is highly negative.

March effect

Analyzing past market cycles, Axis Securities found that since the 2009 Global Financial Crisis, March has averaged a 1.7 per cent gain, improving to 3.4 per cent when excluding the extreme Covid-driven drop in 2023. Historically, March has proven to be the best-performing month of the year, increasing the likelihood of it marking the first positive month after a prolonged downturn.

Examining past corrections, the firm noted that there have been 10 instances since 2001 where the Nifty dropped by more than 16 per cent. Two of these corrections remained under 20 per cent, while three ranged between 20 and 30 per cent, and the remaining five exceeded 30 per cent. Notably, June has marked two bear market bottoms, while March, April, and May have each arrested a bear market decline once. While this evidence is inconclusive, Axis Securities believes that with the market at crucial support levels, March has a reasonable chance of at least stabilizing the ongoing downtrend.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.