nifty: This stock slide’s among longest, and Nifty could fall another 10%

The Nifty’s 14% decline from the lifetime highs hit in October 2021 may not qualify as a bear market but it is surely one of its longest corrections, while the index could decline another 10% if the historical trends are to go by. The Nifty ended down 0.6% at 16,025.80 on Wednesday.

“Using the median of 68% of the eventual decline at the low seen earlier this month, the full decline for the ongoing fall may be 21% and a low around 14,500 on the Nifty index,” said brokerage CLSA.

After hitting a record high of 18,604.45 in October last year, the equity market has been weighed down by concerns over inflation, rate hikes by the US Federal Reserve, and recession fears, resulting in overseas investors pulling out of stocks here.

The seven-month duration of the ongoing correction has already made it the seventh longest decline of the 19 corrections of over 10% that have been seen in the Nifty over the past 30 years. The duration of this correction is four times longer than the average duration of the nine bull market pullbacks, said CLSA.

Rohit Srivastava, founder of Indiacharts.com, sees 15,000 as an important level to watch out first before the Nifty slides closer to 14,000-14,500 levels.

“14,200 is an important support – the level from which the rally started in April 2021. We are looking at 15,000 first,” said Srivastava.

There have been nine bear markets in Indian equities over the last three decades. A bear market is said to happen when a stock or index falls 20% from the recent highs.

“Even if this happens in about a month, Nifty’s 12-month forward price-to-earnings would fall near its historical average of 16 times, which is close to previous lows in the last five years other than in March 2020,” it said.

CLSA pointed out that this decline has seen highest strength from domestic flows which has limited the price damage despite record overseas investor outflows.

Several indicators are pointing at a further decline including continued FPI outflows and rising volatility levels. India’s Volatility Index or VIX – a fear gauge – ended down 1.4% at 25.28 levels. VIX is up 53% this year but experts believe the fear in the market at 25 on the VIX is nowhere near extreme levels.

“VIX is in an uptrend and we have not reached the point of capitulation – which is when fear in the market reaches an extreme high,” said Srivastava.