Nifty on Track for Third-Longest Technical Correction, Yet Shallowest Ever

Nifty Faces Prolonged Correction, Yet Remains Relatively Shallow

The Nifty 50 index is on track to complete its third-longest technical correction, but the decline is notably shallow compared to historical standards.

Understanding the Technical Correction

A technical correction occurs when an index or stock experiences a decline of 10% or more from its recent peak. The Nifty’s current correction is notable not just for its duration but also for its shallow nature. Historically, corrections of this length have seen much deeper declines. For instance, during the global financial crisis of 2008-09, the Nifty spent 227 sessions below its 200-DMA, with a maximum decline of 45.3%.

In contrast, the current correction has seen a maximum deficit of just 11.5%, with an average shortfall of 4.5%. This indicates that while the market sentiment remains cautious, the selling pressure has not been as severe as in previous downturns.

Factors Influencing Market Sentiment

Several factors have contributed to the Nifty’s current trajectory. Geopolitical tensions, particularly in West Asia, have created an uncertain environment for investors. Additionally, the exodus of foreign institutional investors (FIIs) from Indian equities has added to the bearish sentiment. Rising crude oil prices and firming bond yields have further compounded the challenges, leading to a rotation of investments from large-cap stocks to smaller peers and primary markets.

V K Vijayakumar, Chief Investment Strategist at Geojit Investments, noted that the current market resilience is more a function of liquidity rather than earnings. He emphasized that external pressures, such as high crude prices and US bond yields, are prompting bearish positions among investors, which is evident even on days when there is positive buying from FIIs and domestic institutional investors (DIIs).

Technical Analysis and Market Outlook

From a technical perspective, analysts are observing bearish signals in the Nifty’s chart patterns. Shrikant Chouhan, Head of Equity Research at Kotak Neo, pointed out the formation of a bearish candle on the daily chart, indicating a negative setup. Key support levels are identified around the 20-day Simple Moving Average (SMA), with 22,800 and 22,750 acting as critical zones for the index.

If the Nifty can sustain above these levels, there is potential for a move towards 22,950-23,000. However, a breakdown below 22,750 could lead to increased selling pressure, pushing the index towards the 22,650-22,500 range. Ponmudi R, CEO of Enrich Money, echoed this cautious sentiment, suggesting that the Nifty remains under pressure amid persistent selling.

Key Highlights

• The Nifty 50 index has spent 160 trading sessions below its 200-DMA, marking its longest stretch since January 2012.
• Current correction is the third-longest in terms of trading sessions but has a maximum decline of only 11.5%.
• Geopolitical tensions and rising crude prices are major factors influencing market sentiment.
• Technical indicators suggest potential support around 22,800 and 22,750, with resistance at 22,950-23,000.
• Market resilience is driven more by liquidity than earnings, according to analysts.

Investor Note: The Nifty’s prolonged correction, while historically significant, is characterized by its shallow decline. Investors should closely monitor key support levels and external factors that could influence market dynamics in the near term.