The market was experiencing significant volatility today, with a sharp decline followed by a quick bounce and then another downturn. The Nifty index broke below 25,000 during the drop but managed to recover slightly by the end of the day. Overall, it was not a favorable day for the market, especially for small and mid-cap stocks, which saw substantial losses at the beginning of the day but recovered somewhat as the day progressed. Given that today is the last trading day of the week, it is likely that many weak hands exited the market.
Most of the pressure on the markets appears to be external, with no significant internal news influencing the declines. While it’s difficult to predict how long this situation will last, today’s discussion will focus on potential recovery timelines for the markets. We will analyze historical market declines to gain insights into the recovery process.
Where is the market headed?
Market Overview
Looking at the Nifty index, it has broken down from its previous trend and has dipped below the 40-day moving average we were tracking. The pivot point around 24,800 is crucial, as is the 25,000 level, which has psychological significance as a round number that was previously resisted before the market’s rise. The recovery earlier today was sharp but was ultimately affected by selling pressures from foreign institutional investors (FIIs). We anticipate another significant FIIs selling figure for today, which we will confirm towards the end of the trading session.
Overall, the Nifty is down 0.93%
Nifty Next 50
while the Nifty Next 50 managed to recover slightly towards the end, though it is still down 1.1%, returning to levels seen in mid-July. The pressure is evident across the Nifty Junior
Nifty Mid and Small Cap
Interestingly, mid and small caps haven’t experienced severe falls compared to past patterns; typically, they would decline more sharply than large caps. Today, small caps are down 0.8%, having fallen before large caps.
Nifty Bank Overview
The Bank Nifty found some support on a long-term trend line and has been down over the past five to six sessions, registering a decline of 0.74% today. It seems that the majority of the damage may already be done unless FIIs continue their selling spree
Advanced Declined Ratio Trends
Notably, the advance-decline ratio has improved from yesterday, moving from 50 advances to 450 declines to 128 advances against 371 declines today. This indicates that the intensity of the downtrend may be easing.
FIIs had a significant sell figure yesterday, amounting to 15,000 crores, but domestic institutional investors (DIIs) stepped in to buy nearly 13,000 crores. Sentiment remains subdued despite this balance of buying and selling, and the selling heat maps showed considerable red across various sectors.
Nifty Heatmap
Some defensive stocks like ONGC benefited from rising crude oil prices. Meanwhile, many auto stocks remained flat, apart from Mahindra and Mahindra, Aishar Motors, and Hero Motors, which experienced declines. Surprisingly, deep cuts were seen in FMCG stocks such as Nestle, Hindustan Unilever, ITC, Britannia, and Tata Consumer. The Bajaj group also faced significant declines, along with HDFC Bank, ICICI Bank, and Reliance. However, State Bank of India did not fall, which keeps hopes alive for a potential market rebound, as it often serves as an economic barometer.
Within the Nifty Next 50, red dominated the landscape, with notable declines in stocks like GAIL, D-Mart, Colgate, Adani, and Jindal Steel, which had seen gains yesterday.
Sectoral Overview
Some sectoral trends showed PSU banks and IT stocks up by half a percent, while all other sectors declined. Pharma and metals were down slightly, but metals had been the top-performing sector over the past month due to positive news from China. Real estate and auto stocks continued to struggle, with the real estate sector down 1.8% today alone and 7.8% for the week. Energy stocks fell by 5.5%, while private banks saw a decline of 4.9%.
Sectors of the Day
Nifty IT Index
FMCG stocks have returned to breakout levels from mid-August.
Stock of the Day
VIP Industries
Stock spotlight today is on VIP Industries, which opened strong but fell below 520 before reversing and closing near all-time highs, up 7.8%. This indicates that its long-term story remains intact, potentially setting it up for further highs.
Story of the Day : When will the markets recover
The frank answer is, nobody knows. However, let’s analyze the current situation. The Nifty has fallen 4% from its all-time highs and returned to levels seen on September 1st. Thus, the past month has not seen significant movement overall. Importantly, I urge investors not to anchor their portfolios to their peak values; instead, focus on the overall investment.
Historical data shows that there have been 17 instances of 2% declines, seven of 5%, and three of 7% or more in the last five years. Currently, we are at a 4% decline, placing us in the 2% category. The average time to recover from these falls varies, taking 77 sessions for a 2% decline, 155 for 5%, and a whopping 299 for 7%.
If we look at recovery, it typically takes longer, with the most extended recovery period being 401 sessions. Therefore, while a V-shaped recovery is theoretically possible, it is highly improbable. If we breach previous lows significantly, recovery could take several months. However, as long as we do not fall below 23,900 or 24,800, we may see a recovery to new highs in a few weeks.
In conclusion, if you’re feeling panic during this 4% decline, it’s essential to reassess your position and strategy. This is not a dramatic fall in historical terms, and the key is to have a plan in place. If your investments are causing you anxiety, revisit your strategy and consider diversification. It’s crucial to have a well-thought-out plan for the long term to navigate market fluctuations effectively.
