Sensex climbed for the second straight day on Thursday to revisit the 74,000 level while the NSE benchmark also zipped past 22,500, raising hopes might have already made its near-term bottom.
While the equity benchmarks are down 15 per cent from their recent highs, SAMCO's Apurva Sheth noted that 87 per cent of the NSE-listed stocks are now trading below their 40-week exponential moving averages (EMAs). This, he said, is even lower than the levels seen during the June 2022 market bottom when 82 per cent of stocks were trading below their 200-day EMAs.
"Such low readings usually signal that the majority of the selling pressure is behind us. Historically, when markets reach such oversold conditions, they tend to bounce back as investors start looking for value buying opportunities," Sheth said adding that Trump tariff are likely priced in.
The analyst noted that after such a correction even a small change in sentiment could trigger a short to medium term bounce in the battered names.
Sheth said the number of stocks making net new 52-week lows is down to 927. This is one of the lowest numbers seen in recent years. The number hit a low of 1,0006 during the Covid, following which the market recovered sharply.
"Several stocks hitting new 52-week lows reflect fear and panic selling in the market. In the past, such extreme situations have often marked the final stages of a market correction, followed by a bounce back as selling pressure fades," Sheth said.
SAMCO Securities' analyst said past market corrections of 2003 and 2008 saw low PE ratios coinciding with strong market rebounds subsequently. Nifty's PE Ratio currently stands at 19.6 times. Such valuations offer a good risk reward entry opportunity from a one year perspective, he said.
Historical data suggests that whenever the index trades around such valuation levels, the average 1-year forward returns have been 17.85 per cent. Lower valuations not only provide a cushion against further downside but also attract institutional flows once risk appetite improves, he said.
"On 3rd March Nifty ended on a negative note for 10 consecutive sessions. That's not all...February was the worst negative month ever for the Nifty- Out of 20 trading sessions it closed in the red in 18 sessions. That's a negative closing 90 per cent of the times. We did a back-test to check what happens one months after the index closes for 8 or more consecutive negative sessions. Since 2002, there were nine instances of eight or more days of consecutive negative closing. The index closed on a positive note one month later in six out of these nine instances. The average one month forward returns was 2.68 per cent," Sheth said.
Nifty levels of 26,277 and 21,281 are emotionally and psychologically important for market participants and are likely to act as major hurdles for the bulls and the bears, Sheth said.
"The index is currently trading near the lower end of this range and any dip towards 21,281 is likely to attract buying by market participants. Thus, the downside from here is limited while upside is far bigger," he said.