Week 7 & counting: Will markets go 1 step forward or 2 steps back?

Mumbai: Will the bullish momentum in Indian equities reverse in the near term after seven straight weeks of gains?

That’s the question market watchers will be pondering over in the next few days, as data from the past decade show the market tends to be vulnerable to declines after a seven-week winning run.

Yet, the strength in foreign portfolio flows in recent weeks may prevent traders from betting all out on a drop in the benchmark indices, market watchers said.

Both the BSE Sensex and the NSE Nifty have surged over 13% since the last week of October, in a record-breaking rally that catapulted them to over 71,000 and 21,000, respectively, last week.

Since 2010, there have been only four instances where Nifty has rallied for more than seven weeks in a row, according to a study by Tradonomy Research, a Mumbai-based research advisory.

In 2012 and 2021, the Nifty dropped 14.3% and 5.4%, respectively, after seven consecutive weeks of gains, while in 2018, the index rose for eight weeks, following which, it dropped 10.1%. Nifty rose for nine weeks in a row in 2010, after which it declined 10.7%, the report showed.

“We are currently experiencing a similar instance, where the rally started in the last part of October and has extended for seven weeks to current levels,” said Dharan Shah, founder of Tradonomy. If the bullish trend reverses, he sees the Nifty declining by 6.8% to as low as 20,000 levels.

Amid Record Highs, Fears Arise
On Friday, the Nifty and the Sensex closed at life-time highs of 21,456.65 and 71,483.75, respectively.

In December so far, the indices have jumped close to 6% as a decline in US treasury yields, weakening dollar, drop in crude prices and the ruling BJP’s strong performances in the recent state elections have sparked a deluge of foreign flows into domestic stocks.

The US Federal Reserve’s dovish tilt in monetary policy last week has accelerated foreign purchases, but the pace of the market rally in recent weeks is feared to have driven stocks into an overbought zone. Scepticism over the near-uninterrupted rally reflected in a 6.5% surge in the Volatility Index (VIX) – a fear gauge – on Friday to 13.13, suggesting traders see risks to the market in the near term.

“Nifty has moved from 19,000 levels to 21,500 levels in the recent sessions, so a correction of 8-10% is expected,” said Shrikant Chouhan, executive vice-president and head of equity research at Kotak Securities.

Some analysts expect the recent euphoria in the market to subside with the holiday season around Christmas and New Year set to kick in.



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