Nifty 50 Extends Four-Month Decline, 15% Down, Will Rally Emerge Soon?

Nifty 50 Falls for Fourth Consecutive Month Amid Geopolitical Crisis

The headline index Nifty 50 has experienced a decline of 15% over the past four months, largely due to the ongoing geopolitical crisis, exodus of foreign investors, and soaring crude prices. This prolonged period of decline may serve as a contra-indicator, suggesting that the index's fortunes in April may improve.

According to DSP's latest Netra report, the Nifty 50 has only recorded seven instances of decline lasting four months or longer. The longest such instance was an eight-month run from September 1994 to April 1995. The report highlights that the longer the fall, the smarter the rebound typically is.

| Average/Median Return Over Different Periods | | --- | --- | --- | --- | | 3 Months | 6 Months | 1 Year | | Average Return | 12.2% | 22.4% | 40.7% | | Median Return | 13.9% | 17.0% | 20.8% |

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The brokerage noted that the gap between average and median returns, particularly over six months and one year, suggests that a few very strong rebounds lifted the average, while the median provides a cleaner sense of the more typical outcome. The report concludes that these four-month losing streaks have been rare, but once they ended, forward returns were usually favorable.

The ongoing West Asia conflict has led to a selloff in global equity markets, while a weakening rupee and concerns about the impact of elevated crude prices on India's growth and corporate earnings have kept Foreign Portfolio Investors (FPIs) on edge, resulting in record selling in March. India has delivered poor earnings growth and returns relative to other markets, both developed and emerging, over the past eighteen months.

The closure of the Strait of Hormuz has led to a spike in crude prices, sending the commodity soaring past the $100/bbl mark. This has raised concerns about India's oil bill and fiscal standing, as India is a net energy importer. However, conversations surrounding a ceasefire, coupled with value-buying, have lifted markets in April. Even as the Nifty 50 and broader markets are seeing selling pressure today, the headline index is still up over six percent for the month so far.

Despite the improved market performance in April, the ongoing uncertainty and volatility on the geopolitical front could temper gains, prompting investors to tread carefully.

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