The BSE 500 index could see sharp upmoves over the next one to six months, according to domestic brokerage JM Financial. As a result, the brokerage believes that any decline from the current levels should be used an opportunity to assume long positions in the broader market.
The key indicator - the percentage of stocks above 200-day moving average - in the universe of BSE 500 constituents declined below 10 percent during March. However, with the BSE 500 index moving up by ~8 percent in the current month, the percentage of stocks above 200-day moving average has increased to 23 percent now.
The BSE 500 index has declined from a high of 38,740 levels as observed on September 27, 2024 to a low of 30,967 levels as observed on March 3, 2025, a decline of 20 percent in a span of 5 months.
The index, in the current month, has recouped most of the declines observed in the month of February, 2025. "We believe the index has made a firm bottom at 30,967 levels and is poised for a sharp up-moves over the next 1-6 months period," said JM Financial.
Historically, a dip in the percentage of stocks above 200-day moving average below the 10 percent mark has seldom been observed. "In the last 20 years, it has been observed only on 3 occasions i.e. year 2009, 2012 and 2020. Further, we have observed that any move above 20 percent in the indicator confirms the trend reversal, followed by a sharp surge in the BSE 500 index," added the brokerage.
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In the year 2009, the indicator dipped below 10 percent on June 24, 2008 while recovering above 20 percent on April 13, 2009. Post that, following returns were observed:
- On a 1-month basis, the BSE 500 index made a high at 10.1 percent and low at -0.4 percent.
- On a 3-month basis, the index made a high at 46 percent while failed to make a lower low as observed during the 1-month period.
- On a 6-month basis, the index made a high at 64 percent while the low made on a 1-month basis was never breached.
Once again, in the year 2012, the indicator dipped below 10 percent on December 20, 2011 while moving above 20 percent on January 19, 2012. Post that, following returns were observed:
- On a 1-month basis, the BSE 500 index made a high at 12 percent while it failed to make any lows below the levels observed on January 19, 2012.
- On a 3-month basis, the index made a high at 13 percent while didn't break below the levels observed on January 19, 2012.
- On a 6-month basis, the index declined from a high of 13 percent as observed on a 3-month basis. It made a low at -2 percent from the close of January 19, 2012, followed by a strong bounce up.
In the year 2020, the indicator dipped below 10 percent on March 18, 2020 while reversing above 20 percent on May 29, 2020. Post that, following returns were observed:
- On a 1-month basis, the BSE 500 index made a high at 10 percent while it failed to make any lows below the levels observed on May 29, 2020.
- On a 3-month basis, the index made a high at 21 percent and didn't break below the levels as observed on May 29, 2020.
- On a 6-month basis, the index made a high at 34 percent and never closed below the levels as observed on May 29, 2020.
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