By Anand James
Nifty has now fended off multiple attempts to set off on a downside spiral, with momentum fizzling out on every attempt to scythe through the 23000 support. Clearly, the market is clinging to some hope, as the budget announcement is near. It is noteworthy that 67% of the time in the last 12 years, the week before the Union Budget, has been negative for Nifty50 with an average return of around -2%. During these 12 years, 75% of the time, the week after the Union Budget has been positive for Nifty 50 with an average gain of around 2.7%. In addition, 75% of the time when Nifty 50 saw negative returns 1 month prior to the Union budget, we saw an average return of 7% in the next 3 months.
We are in the Q3 earnings period and only around 30% of the companies in Nifty 50 have come out with their results and only around 30% have reported quarterly profit growth (YoY). Meanwhile, 28% of the Nifty 50 companies are coming out with Q3 earnings next week with a focus on auto majors like Maruti Suzuki, Tata Motors, Bajaj Auto, and TVS Motor. That said, it cannot be forgotten that 75% of the time in the last 8 years, mid-cap 150 and small-cap 250 have fallen an average of 3% and 4% respectively in February.
Will history repeat?
This is the first time after 2001 that the Nifty 50 is falling for the fourth consecutive month. In 2001, the Nifty 50 fell an average of 6% in four months from July to September and was followed by a 5% upside in the following three months. This time around Nifty is down close to 2% as we move into the last week of the fourth month. If Nifty50 recovers and closes for the month positively, we will be looking at different statistics. Since 2000, Nifty50 saw 13 instances of 3 months of consecutive downside and around 70% of the time, we saw an average 3% upside in the next three months. What stands in the way of the upside hopes is the fact that 58% of the time February months have seen negative returns for Nifty50 in the last 12 years.
With a 2% negative return so far, January appears to end the same way as December which also closed 2% down.
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