Today was the last day of the week, with tomorrow being the Holi holiday. So, wishing all the viewers the best of Holi and hoping you have a safe weekend.

Today, we are going to look at some data points that may give us insight into whether this decade will be different from previous ones. We’ll explore how markets used to behave earlier and how this current decade is behaving. We’ll look at some data points in this context

Where is the market headed?

Market Overview

Nifty made no headway on the higher side, remaining stagnant with a 0.33% change for the day. There is no significant news to report about Nifty.

Nifty Next 50

Nifty Jr. was also down by half a percent. Although the first half of the day seemed to indicate a positive move, it did not materialize.

Nifty Mid and Small Cap

Midcaps were down 0.6%, and small caps were down 0.69%.

Nifty Bank Overview

So, across the board, markets were losing about half a percent, except for banks, which rallied in the morning but closed absolutely flat.

GOLD

Gold was up by 0.35%. Gold is heading for a new all-time high, with the price nearly reaching 87,000 at the time of recording.

Advanced Declined Ratio Trends

The market breadth was mostly biased towards the selling side, with not much to report here.

Nifty Heatmap

The heatmap was mostly in red, with no deep crashes, but there were 0-2% moves in most stocks. Nifty Next 50 had some green stocks like Adani, D-Mart, VBL, and Bank of Baroda, but there were also a significant number of mild losers for the day.

Sectoral Overview

In terms of sectoral trends, real estate moved down 1.8%, with media, auto, and metals also down. Most other sectors were flat, with defense moving up by 1.2%. This has been a surprise this week, with a 2.5% increase in defense stocks. Over the last month, defense has performed well, although three and six months are still showing a decline in real estate. We’ve lost 5% this month and 26% in the last three months. IT stocks continued their decline, falling half a percent. These stocks have been the biggest losers over the last month and the past week as well.

Sectors of the Day

Nifty IND Defence Index

While there haven’t been significant gains in most sectors, the sectoral pattern is different. The defense sector, for example, is showing more strength compared to the rest of the market, which is near its lows. It has bounced nearly 12% from the bottom and is stabilizing there. This suggests that defense stocks are relatively stronger than others.

Story of the Day : Is this decade going to be different from previous ones?

A common question among investors is whether we are in a structural downtrend or if the small bounces we’re seeing are merely bear market trend bounces. To answer this, we need to look at how markets have behaved in the past to predict where they might find suitable support.

Over the last two years, we’ve had several mild corrections, and we’re currently at about a 15% correction, especially on the major index. If we look at Sensex, an 18% correction would take it to about 70,000, a 26% correction to about 63,000, and a 33% correction would bring it to about 57,000. These are all within the realms of what could happen in extreme situations.

We are also staring at two consecutive quarters of negative performance. If March continues in the current manner, we would not have seen two consecutive negative quarters since 2015. The markets have shown such strength that even during the COVID crisis, all the pain was consumed within one quarter, and the next quarter saw a rebound. In 2022, there was one down quarter, but it was only in 2015 that we had four quarters of negative growth, and the entire year was spent in a downward trend. We are currently in the second negative quarter, which is something we haven’t seen in the last 10 years. This gradual and consistent fall in the markets is quite different from what we have experienced in recent years.

When we look at consecutive positive and negative quarters over the last 40-45 years, we see that while we are currently in a negative two-quarter streak, this same phenomenon occurred in 2015, 2011, 2008, and so on. From 1990 until 2005, this was more common, but after 2015, there have been virtually no down years. The years with consecutive positive quarters were abundant, and the positive quarters have been reasonably consistent over the past 40 years. In a study of 183 quarters, 60% were positive, and 40% were negative. This indicates that there’s almost an equal chance of getting a consecutive positive or negative quarter, but consecutive negative quarters have been rare in recent years. Given this, it seems unlikely that we will see a third consecutive negative quarter.

At the end of February, I expected March to be positive, and there is still a chance for that. We are only halfway through the month, but if March does not turn positive, the chances of April being positive increase significantly. Strong bull runs are often followed by sluggish phases, which is a normal market behavior. While most people are focused on the fall from the 52-week high, it’s essential to think rationally about where the market came from and how high it went. If your usual market return is 14-15%, but you’ve had 25% consecutive returns for several years, the market is likely to revert to the mean, causing the steep falls we are seeing now.

Looking at the seasonality of returns, we see that the first quarter of the year (January to March) is usually weaker than the rest of the quarters. In the last 45 years, the first quarter’s average return has been -1.5%, -0.7% over the last 20 years, and -5.1% over the last five years. This year, too, the first quarter is performing similarly. The second quarter (April to June) generally sees much better performance, and in the last 5 and 10 years, it has been particularly strong. The third and fourth quarters have also been positive, so seasonality plays a role in these fluctuations, partly due to year-end activities, tax planning, and other factors.

Looking at the consecutive drawdown days in the market, we see that in the last five years, this number has significantly shrunk. Currently, we are at just 116 days, but in the past, such as after the Harshad Mehta period, markets had to wait as long as 1,100 days before making a new high. The last decade has seen this number coming down, and for the last five to six years, it has been relatively low, which indicates that the markets have been more resilient in absorbing losses. The excessive flows towards the market and the money printed during the COVID period might be the reasons why deep drawdowns are not happening as frequently as before.

Drawdown durations have significantly reduced over the past decade, and investors now expect markets to recover quickly. In today’s world of quick commerce, where everything is expected fast, there’s an expectation that market corrections should also be short-lived. This expectation has become a norm, whereas, in the past, bear markets could last three, five, or even seven years. The retail push and the resilience of DIIs have likely contributed to these quicker recoveries, making the fall less dramatic and the recoveries much faster.

In conclusion, while corrections are healthy and necessary for the market, the nature of these corrections has changed. We are seeing thinner and shorter corrections, and this trend might continue. This is not just an India-specific phenomenon but a global one. Corrections are a natural part of market cycles and are essential to wash out excesses and bring stocks back to normal levels. As always, the market moves in a two-steps-forward-one-step-back fashion. So, stay the course, continue your SIPs, and remain consistent. Long-term rewards will follow.

There is enough history in our markets to suggest that if you stick with your strategy and don’t give up, you will likely see positive results. It’s often our own rash decisions, made either at the top or the bottom, that harm our portfolios.

WeekendInvesting launches – PortfolioMomentum Report