Today we are going to talk about the fall in the markets. Is a bigger fall possible now? I think the worst fears are coming true. All the bounces that we have been seeing in the market have been given up. We are at a very, very crucial neckline in the charts. I’ll show you that in a short while, but it does seem like the market is gearing up for something deeper on the downside. Let’s see what the charts are telling us.

Where is the market headed?

Market Overview

So, this bounce that we had recently, last Thursday, has been completely given up. This attempt to pull back up just managed to close this gap, and immediately upon closure of this gap, the market has fallen down in two sessions and eroded more than what it gained in those two up sessions. We are again at near 23,500 to 23,600 levels, which was the level initially achieved by the first leg of the fall. Then we had a bounce, a higher low than the previous one, and then we were bouncing into the next high. But this has been abruptly and immediately ended. This level of 23,500 around to 23,250 still has support here. I would not say that this would easily go away, but if 23,250 gets taken out, then of course, a lot of investors who buy or sell based on some levels will come and sell the market. That will create even more pressure on the downside.

Once this level breaks, the market in the last two sessions itself, on a very short-term basis, is oversold. So a pullback after a gap down or a quick retest of this level is also not out of the bounds right now. But yes, the hope that this leg would have built up has been dashed, and we will now again need to find a bottom somewhere, consolidate, and then come back up again. So, the recovery definitely is delayed now. The Nifty is down by 1.62%, and the Nifty Next 50 was not as lucky as Nifty, getting smashed down by 3.1%.

Nifty Next 50

On the Nifty Next 50, we are already near the mid-November lows, and this chart is not looking pretty at all on the mid-cap front. A big gap down, a gash down on the charts by 2.52%. This is sort of a continuation of what was happening about eight or nine days ago, and a similar candle has come here. There is a gap here, and there is a good likelihood that we will go down, fill this gap, and try to find some bottom here. That now looks quite possible.

Nifty Mid and Small Cap

On the mid-caps, the loss is minus 2.5%, and small caps are also losing more than what they gained in the last seven or eight sessions in just one stroke, down 2.88%. This entire rise from mid-November, more than half of it is already gone, and most likely than not, some more will also go, down by 2.8%.

Nifty Bank Overview

On the Bank Nifty, you can say is the leading indicator or the leading chart here, where we are already challenging the November lows and also the August lows. So, the Bank Nifty is a terrible chart compared to others. But then again, the Bank Nifty is also in the oversold zone of the charts right now.

Advanced Declined Ratio Trends

Momentum trends and advances are virtually 45 versus declines at 455. So, it’s a 10:1 kind of ratio of decline. There are very few places to hide today.

Nifty Heatmap

The heat map is completely red. Reliance is down 2.6%, and this is on the back of news that Jio will come out with an IPO this year. Coal India is down 4%, Trent 4%, NTPC almost 4%, Power Grid, ITC, of course, this is the demerger of ITC hotels that is happening. So, part of this fall was due to the stock going ex-demerger, but even then, I think the expected fall for ITC was about 4 or 5%, but it has fallen effectively by about 3% more than that. Mahindra & Mahindra is also down by 2.6%. HDFC Bank, which probably set the cat amongst the pigeons by its growth outlook and its numbers on the weekend, is down 2.21%. Also, a lot of public sector banks came out with their numbers and their narratives, and they were all sort of playing along in terms of the weak outlook regarding deposit growth and poor credit growth.

SBI is down 2%, Kotak Bank down 3.2%, and so on. The Nifty Next 50 is washed with red again. You can see LIC, IRFC, DLF, REC, Lodha, PNB, PFC, Zomato, Indigo, Vedanta, VBL, Adani Power, all down around 3 to 4%. Mother Sons, Havel’s also down, BHEL down. No place to hide. A couple of stocks that managed some green were Godrej CP, and LTIM was flat for the day. Bank of Baroda and Bajaj Holding were down by more than 5%.

Sectoral Overview

So, what is happening is that the market is looking for a new equilibrium. What we were earlier gauging to be an equilibrium point has not stayed, and now the market is looking for a new equilibrium. IT stocks are the only ones which sort of bucked the trend here, down by just 0.1%. Everything else was down by 1, 2, 3, or 4%. PSU banks hit the most at minus 4%, and PSE is at minus 3.6%.

So, it does seem like the market is not even willing to wait for the budget to, you know, smash some of these stocks. Already, some of these stocks have gotten really badly smashed. This changes the picture of the one week that we had, which was primarily all green till a day back, and now it is primarily all red. Autos are still eking out 3.1%, but were down by 2.2% for the day. In just the last one month, PSU banks have now lost cumulatively on the index by 11.2%. Metals are down by 10%, and public sector enterprises by 8.7%. So, the gashes have been quite deep, and on a three-month basis, you even have 17.5%, 16% losses on energy and metals. So, quite a remarkable takeaway from where we were three months ago.

Sectors of the Day

Nifty PSU Bank Index

And you can see the public sector banks that have been smashed down. Probably the public sector banking index is the only index that is now again below the June 4th election day low, which has been a low that held for many other indices as well as Nifty. But we are still far from that on many indices. PSU banks are sort of leading the charge below this level, and it looks like a lot of distribution and some collapse is happening here. Minus 7% on Union Bank, 5.6% on Bank of Baroda, 4.6% on Bank of India, Bank of Maharashtra, IOB, Punjab Sindh Bank—all regardless of where their numbers are. If they were PSUs, you will get smashed.

Lowest Momentum Stock

Adani Power

On the portfolio momentum score report, we see what is the momentum score of the stocks that you hold. You can do this health checkup if you like. Another large-cap stock that has a very low momentum score and we are highlighting low momentum scores here is Adani Power, which is down from nearly 900 rupees to 496. Very low momentum scores would be the ones that you want to get out of first amongst your portfolio. So, in momentum portfolios, obviously, those with the highest momentum scores remain in the portfolio, and those with lower momentum scores will get out first. Either these strategies will go to cash or they will rotate into the relatively higher scores. It could also be a position where, let’s say in Nifty50, all stocks are having lower scores, but even amongst those lower scores, the best few will get chosen to be there in the relative terms. By having this score, you can sort of make out which stocks you should be able to get out of, or if all the stocks in your portfolio are healthy or not.

Since June, this has dramatically gone down versus the large caps. The large caps are still flat versus June, whereas Adani Power is down by 43%.

Story of the Day : Is a big fall brewing in the market?

We’ve now had the third attempt at the breakdown of the 200 DMA. The first attempt was here, the next attempt was here, and we pulled back up, and this is the third attempt here. When you keep pushing against some resistance, it usually gives way over a period of time. So, this is also the first time that we are seeing a 10% plus correction since the top that we made here. A move below this particular support line will probably confirm that, you know, we are in for some rough start in 2025. Till we break down below this level, I would still remain hopeful that, you know, some turnaround may happen. But after three falls, usually, the market’s back will break, and it will go somewhat lower.

In my mind, the worst-case scenario is somewhere near the election day low. I don’t hope we go there, but if we do go there, then you should be mentally prepared for that kind of an outcome. Below that, of course, nobody is prepared for that, but rationally you should be prepared for that. In the past, we’ve had a lot of 10% plus falls. We’ve documented the last 20 years, and you can see there are so many of them when the market fell more than 10%. But the end result of that is that if you remained allocated in the market and if your strategy was able to churn into stocks that are winning or recovering, then you would have this equity chart. This is the Nifty chart, but your equity chart could look better than this. If you do two things: Stay in the market, don’t run away from the market, and two, make sure that you don’t get stuck in stocks that don’t recover. That is the most key for a lot of portfolios where people think that, okay, I’ll stay in the market, but the 10-20 stocks that I bought, I’m going to wait till they come to my buy price or until they get some profit. That is the cardinal mistake that a lot of folks will make.

Because in every subsequent rally or a new bull run, the same set of stocks will not perform. If IT stocks performed in 2000, they are performing now after 20 years in any big way. If infrastructure stocks were performing in 2004-2007, they are now performing in some big way. Pharma was performing in 2011-2015. It has now started to perform again. So, the cycles of different segments or sectors are going to be different. So, don’t expect the basket of stocks that you bought when the market goes down, the same stocks will come back up. That won’t happen, not immediately. Maybe they’ll come up later, or some may never come up.

So, if we were to tabulate all these falls of 10% or more, you will see that while there were some exceptional falls like 60% in the GFC crisis in 2008, 38% in the COVID crisis in 2020, most of the other falls would be between 10% and 20%, or maybe 10% and 25%. You can say on average, being 22%. But it also has these bigger falls as part of it. So, about 20% is the max sort of drawdown that you would think could happen rationally. Now, out of these 28 sessions, only two or three times did we go beyond 25%. And the recovery from these bottoms, where complete loss was recovered, happened within three to four months. But on an average, when we see everything, it’s 244 days, which is about a year. So, in your mind, you should be prepared that this entire fall that we are having, even if it bottoms today, we will take a year to recover or maybe nine months to recover because we have been falling for three months. That is the sort of base case that you should work with.

This recovery is not just for the amount you are invested already, but the amount that you are continuously investing that will also recover—a very quick recovery of your overall portfolio. So, this is based on one-time investing. But when you are gradually bringing in your money, that recovery will happen very, very fast. So, that is something that you want to keep in mind. More on this, the number of average market days for a 10% fall has been 28 days. So, in the periods that we have taken from 2005 to 2021, you can see that more recently the number of days to a 10% fall has been higher. The average max drawdown in all 10% falls is 22%, as I already showed you. Most of them are below this average line. Only exceptional ones are above that. So, expecting anywhere between 10 to 20, 22% is something that should be there.

The average recovery period usually will be three to four months. In some cases, it will be more and will get extended to a higher recovery period. So, from all this, knowing the history and knowing that the market always recovers, there should not be any panic. First of all, whenever you come into the equity market and into direct investing, a three to five-year view is something that we always tell you that you must have. So, if you’ve come in very recently, let’s say three months back, you are sitting with the maximum pain. There is no doubt about that. You may be down 10, 15, or 20%. If you came in, let’s say a year back, you’ve lost some money, but it’s not that you are still negative for the year gone by. So, you can take solace that your capital is still intact. If you came in two or three years back, you are still sitting in very good comfort cushion that has been built on your capital. Yes, you’ve lost money from the top, but then you know markets, as you’ve already seen, if you are in the market for three years, market returns are lumpy. There will be some very good years and there will be some bad years. Maybe this current quarter and this year are going to be a bit rough. That is the thought today. But two months later, there may be some changes in the market that may, you know, you may completely forget about this period totally. It is very, very much possible because markets change trends in very, very quick manners. And it’s only because you are concentrating on today that will give you pain in your mind. But if you were to look at a longer picture, that will get distributed across.

So, if you look at one year, two years, three years behind, you will see that where you were, you’ve come a long way from there. And the same way will happen in the next two, three years. So, if you stop to focus about today, that I have lost this much money today, it’ll take your mind towards that larger picture that needs to be built. So, the correction is important. That is also very true because it’s an opportunity to remove the excesses from the market. There are always excesses that get built in pockets, weekends, hot money, all that needs to be removed. You have an opportunity that has been given again to identify stocks or to add more capital to the stocks that you like or to do better than the normal average investor who will run away at the drop of the market. You don’t want to be that.

See, most people will not make money in the market. It’s a fact. But if you want to make money in the market, you’ll have to stay and bear the pain. And that pain you’re bearing is the reason why you’re getting those premium returns by taking that risk. It’s a great opportunity for rupee cost averaging. So, if you keep on allocating money gradually, you will see, as the market trend turns, whenever it does, all that will start to work for you effectively. And after every fall, we’ve done many studies on this, there’s a brilliant correction recovery that is waiting to happen. So, you need to embrace the falls with the view that, yes, there is going to be a pot of gold at the other end.

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