'If Nifty Continues To Decline Below 23,000 Mark...'

'Selling could further intensify and take the index towards 22,800-22,750 in the near-term.'

A falling market in the last few weeks has taken 404 of the 500 stocks (81 per cent) that comprise the Nifty 500 index below their respective 200-day moving average (DMA).

A stock or an index trading below 200-DMA is considered to be in a bearish trend and vice versa.

Within the Nifty 500 pack, Honasa Consumer, Sterling and Wilson Renewable Energy, Whirlpool of India, and Adani Green Energy have plunged more than 52 per cent since September 27, 2024 when markets peaked.

Chennai Petroleum, Sobha, Rajesh Exports, Thermax, HFCL, Jupiter Wagons, Rites, PVR Inox, Shipping Corporation of India, Godrej Properties, Suzlon Energy, NCC, Star Health, Shree Renuka Sugars, and Jio Financial Services have lost 30-50 per cent.

"The December 2024 quarter (Q3FY25) earnings were not up to mark. Valuations, too, were expensive; hence, we are seeing some valuation-based market correction now," said Kranthi Bathini, director - equity Strategy at WealthMills Securities.

Mid and smallcap stocks are high beta and prone to selling pressure as liquidity dries up, said Bathini.

As a result, these shares are witnessing a steeper fall compared to others, said Kranthi, who expects earnings to improve in the March quarter.

In the backdrop of a US-triggered global tariff war, Prime Minister Narendra Modi's visit to that country is likely to act as the next major trigger for the market, Kranthi added.

The NSE Nifty 50 index, too, is trading below its 200-DMA, which stands at 24,046. As of February 11, 35 of Nifty 50 stocks were trading below the long-term moving average.

Prominent ones are Reliance Industries, TCS, Tata Steel, Tata Motors, ITC, Hindustan Unilever, Larsen & Toubro, and Adani Group.

Within the Nifty MidCap 150 and the Nifty SmallCap 250 indices, 118 and 204 stocks, respectively, are trading below their 200-DMAs, according to data from ACE Equity.

Market strategy

Analysts expect markets to remain volatile for the short term in the backdrop of domestic (tepid corporate earnings, rupee movement) and global (US President Donald Trump's tariff threats and their impact on financial markets) events.

They believe the pain will be sharper for the broader markets as valuations of select stocks seem stretched despite a recent correction.

"It is crucial to assess potential risks while staying abreast of global developments. If the Nifty continues to decline below the 23,000 mark, selling could further intensify and take the index towards 22,800-22,750 in the near-term," said Sameet Chavan, head research - technical and derivative at Angel One.

" Conversely, any rebound towards 23,250-23,350 is likely to act as an intermediate resistance, followed by significant obstacles around 23,400 (20 DEMA) and 23,500," Chavan added.

Selling pressure in the broader market is such that almost one out of every five Nifty 500 stocks has tumbled over 30 per cent post September 27, 2024, the day the Nifty 50 registered its summit at 26,277 levels.

In comparison, the Nifty has declined nearly 12 per cent in the same period; the Nifty MidCap 150, Nifty SmallCap 250 and the broader Nifty 500 indices have shed 15.8 per cent, 17.6 per cent and 14.5 per cent, respectively, data shows.

Among sectors, the Nifty Energy and CPSE indices have taken the worst hit: The former is down over 29 per cent and the other has cracked 24 per cent.

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Feature Presentation: Aslam Hunani/Rediff.com