Stock market correction: Stocks may see major surge if history repeats on D-Street
By Rajesh Mascarenhas
Over the past two months, the Mumbai markets have been in a bear grip. The Nifty declined more than 14 per cent from its high, pointing to the vulnerability of Indian equities to the falling rupee, rising oil prices, and widening trade deficits.
But long-term believers in the Mumbai miracle should not lose hope. Every time the index has fallen about 14 per cent in the past 12 years, the next three months have seen the benchmark recoup all the losses, showed a study by Elara Securities. The only exception to this pattern was 2008-09, when the global financial industry had to ride out its steepest decline since the Great Depression.
Currently, the Nifty has recovered about 5 per cent from its two-month low reached October 26. Since 2006, there have been 15 instances, barring the 2008-09 crisis, in which Indian stocks fell more than 10 per cent. During these deep corrections, on an average, the Nifty declined 14 per cent and the average duration of such corrections is 58 days.
After each bout of corrections, the Nifty recoups most of the losses over the next three months, thus offering a 15 per cent return, according to the Elara study. On these 15 instances, the Nifty reclaimed its peak in 11 within six months after each round of declines.
Two notable prolonged corrections were in 2012 — 105 days due to the Eurozone crisis, and in 2015 — 125 days due to the China slowdown, steep drop in oil prices and increasing NPAs. Periods of prolonged corrections were also followed by periods of slow recovery. In both instances, the Nifty took about 6 months to regain its peak.
There are four instances when the Nifty failed to reclaim its peak levels even after six months of bottoming out and in all these instances, the corrections was prolonged — ranging from 52 days to 97 days.
Various factors indicate a recovery in Indian stocks, said analysts.
“We expect the market to rebound from the current levels due to valuation comfort, easing crude prices, a pause or deceleration in currency depreciation, underperformance of ‘Defiant’ sectors like IT and pharma, a rally in ‘Rebounders’ like metals, and easing market volatility,” said Ravi Muthukrishnan, head — institutional equity research, Elara Securities.
Asian Paints,
Britannia IndustriesNSE -1.10 %, Colgate,
GlaxoSmithKlineNSE 0.61 % Pharma, Kansai Nerolac, Crisil,
DaburNSE 2.14 %, and
MaricoNSE 0.24 % are some of the leading stocks that have performed through the latest round of corrections.
https://economictimes.indiatimes.co...-repeats-on-d-street/articleshow/66531928.cms
