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    History suggests 14,500 could be a bottom for Nifty, says CLSA

    Synopsis

    Data shows the seven-month fall has already made it the seventh longest decline of the 19 corrections of over 10 per cent we have seen in the Nifty over the past 30 years, said CLSA in a report.

    History suggests 14,500 could be a bottom for Nifty, says CLSAAgencies
    “It appears that the current strength in domestic inflows is far higher than any previous declines. This has limited price damage despite record outflows from FIIs,” CLSA said.
    NEW DELHI: Market is on a slow grind downwards. The fall that began in October last year has completed seventh months, and data suggests it could be one of slowest rides to bear market territory.

    To be precise, benchmark indices are yet to enter the bear market territory – which happens after a 20 per cent drop – but it may very well do so. Nifty is currently down about 14 per cent from its all-time high levels.

    Data shows the seven-month fall has already made it the seventh longest decline of the 19 corrections of over 10 per cent we have seen in the Nifty over the past 30 years, said CLSA in a report.

    “In the six previous longer declines, the lows in the first seven months equated to a median of two-thirds of the eventual price damage. Overlaying this would give a target of 14,500 for the Nifty, i.e., a 21 per cent fall from the top with the 12-month forward PE falling near its average of 16 times,” said the broker. “So far, this is also a rare instance when the Nifty has clearly outperformed EM and not underperformed the US during a decline.”

    As of mid-May 2022, the low of the current correction, the Nifty index has declined 14.6 per cent in seven months from a high of 18,604.45. Data shows even as this correction is yet to qualify as bear market and price decline is near the median bull-market pullbacks, its duration in days is four times longer than the average duration of the nine bull-market pullbacks and is twice of longest pull-back seen in mid-2019.

    Usually, in the pullbacks, time correction is much lower and longer time correction happens during a bear market selloff. CLSA said the Indian markets have seen only six corrections which have taken longer to form a bottom and all of these were much deeper declines of 23-60 per cent taking 10-27 months. None of the previous declines have been as gradual as the current one, it said.

    Superior market strength
    Another characteristic of the ongoing decline is that Nifty has not underperformed its global peers. This is unlike most of the other declines in the past. In 16 of the 18 declines over that past 30 years, the Nifty underperformed S&P 500 relative to the top to the bottom of the fall in Nifty. This is the second time other than 2018 when performance has been near-neutral to the S&P-500 index. Similarly, the Nifty has underperformed the EM and the Asia-ex benchmarks in 14 of 18 previous declines.

    “It appears that the current strength in domestic inflows is far higher than any previous declines. This has limited price damage despite record outflows from FIIs,” CLSA said.

    (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times.)



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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