Has Nifty made a bottom? If yes, this could be the shortest bear market phase

By Kshitij Anand

Data shows that markets took 8-60 months to recover in the past, as per an ASK Wealth Advisors report. Experts say it's too early to call the bottom and this could be Dead Cat Bounce

Indian market saw a vertical fall from January 20 when both Sensex and Nifty50 hit a fresh record high till March. The selling was due to the uneventful Budget, the trade war between the US and China, and then the outbreak of COVID-19.

Indian market witnessed a steep fall from January to March wiping out 40 percent of the wealth in a matter of just 2 months.

After March 24, when both Sensex and Nifty50 made a swing low 25,638 of 7,511, respectively, the market started to recover.

On June 12, market corrected a bit as Nifty breached 9,700 on the downside intraday.

Historical data shows that markets took 8-60 months to recover.

In terms of time taken from peak to trough, this time Nifty took just 2 months, which was the fastest since 1992, according to a report from ASK Wealth Advisors.

Bulls charged on D-Street despite rising cases of coronavirus in India which have crossed 2 lakh. The recent upturn of the market is a result of a rise in liquidity due to 1) strong fiscal and monetary stabilisation measures from central bankers across the globe including India, 2) opening of the economies, 3) slowing rate of COVID-19 related cases across the globe, and 4) hopes of reversion to normalcy.

“The market optimism is not just limited to India. The markets around the world have done very well. NASDAQ has hit an all-time high. The optimism stems from the opening up of the economy, pent up demand driving subsequent quarters, and unlimited liquidity because of central banks around the world,” Naveen Kulkarni, Chief Investment Officer, Axis Securities told Moneycontrol.

“Liquidity continues to be the key driver of asset prices as higher valuations have become the norm. As for the bottom of the market is concerned, the March 2020 bottom seems to be more likely set for now and we are unlikely to test such lows any time soon,” he said.

The Nifty50 hit 7,511 on Tuesday 24 March 2020 and since then it has only moved up. It has risen more than 35 percent but is still down by about 20 percent from the high of 12,430 levels recorded on January 20.

Experts feel that excess liquidity, lack of other investment avenues has led to over 30 percent kind of return since 24 March 2020. But, at the same time, some advise investors to remain cautious as this could turn out to be Dead Cat Bounce.

"Well, in my opinion, this is a long DCB (Dead Cat Bounce), which has lasted much beyond its life. I will only like to draw your attention to the very fact that it is still very early days to understand the actual ramifications of the March, April, and also part of May lockdown on the entire industry and economy," Arjun Yash Mahajan, Head - Institutional Business, Reliance Securities.

"I don’t think anyone at this juncture is in a position to point the exact hit the economy and the industry has taken. We do see various reports about GDP being in the negative territory for FY21, but they are all model-based numbers," he said.

Mahajan further added that the exact impact will be known from July 2020 onwards and then we will be in a better position to access the hit and the impact. I feel it is still early days and I will be cautious.

"It's too early to call the end of the bear market. It is pertinent to note that a dozen stocks are driving Nifty performance and they are not fully representative of the Indian economy. The financials that make up 40% of the index are in moratorium mode and we will only see true portfolio performance perhaps in the December quarter," said Sameer Kaul, MD & CEO,  TrustPlutus Wealth Managers (India)

"It is difficult to call a bottom especially since the pandemic is prevalent and the number of cases is still rising in India. The bounce reflects enthusiasm for the fact that we are unlocking the shut down. We are a long way away from being out of the woods as of now," he added.

FII flows are stabilizing:

The large part of the steep fall seen in Indian markets was on the back of persistent selling by foreign investors who turned risk-averse which led to the unwinding of positions across the globe, and India was no exception.But, things are different now. May saw good inflows from the FIIs and flows have continued in the month of June as well. However, predicting FII flows is a great challenge as it is ETF and quant driven which is based on global liquidity, suggest experts.

In March to May period, FPIs outflows from the Indian debt market were about Rs 95,000 crores. This seems to be tapering now, data shows. Outflows in the first 5 days of June 2020 is Rs 1500 crore.

“It is always very difficult to predict foreign flows given its intricacies and linkages to global markets, risk sentiments, and overall global liquidity,”
Taher Badshah, CIO – Equities, Invesco Mutual Fund told Moneycontrol.
“If one takes a more aggregated view, in this whole period of the last 3 months of the pandemic crisis, FII interest in India doesn’t appear to have waned by any substantial degree,” he said.
Badshah further added that admittedly, while there were few initial weeks of panic outflows, some of the large offerings by few of India’s biggest enterprises in more recent weeks appear to have evoked a considerable amount of foreign investor interest.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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