Worst stock market rout in nine years likely to be extended: Analysts

The equity markets are off to the worst start to a year since 2011. On a year-to-date basis, the benchmark Nifty is down 9.7 per cent. Last time, it had dropped more during the period under consideration was in 2011, when the European debt crisis had dampened global investor sentiment. On Friday, the 50-share index ended at 10,989. The index is down 11 per cent from its record high of 12,352 on January 17. The market is likely to slide further, say technical analysts.

“The Nifty has formed a bearish candle on the weekly chart. Resistance is gradually shifting lower. Now 11,250-11,430 levels would be an immediate hurdle (on the upside) for the index. Support is placed in the 11,800-11,650 zone. Until volatility cools off and price settles, and we don’t see a strong reversal signal in data, traders shall avoid bottom fishing as it is same like ‘catching a falling knife’,” says Siddhartha Khemka, head-retail research, Motilal Oswal Financial Services.

Market players said domestic investors have been hit by a double whammy – the YES Bank crisis and the rising number of coronavirus cases. Market players said these two events will dictate market direction.

“The updates on the spread of coronavirus cases would be the only biggest trigger for the next few trading sessions. Also, the resolution plan for YES Bank could be an important trigger on the domestic front. The short-term trend is weak, and 10,900 should act as an important support for the market. Trading above the same, we can expect a quick relief rally up to 11,200-11,250. However, a fall below 10,900 could trigger one more leg of correction wave till 10,800-10,750,” says Shrikant Chouhan, senior vice-president, equity technical research, Kotak Securities.

On Friday, the Nifty dropped to 10,827 in intra-day trade and saw a sharp pullback from that level to close slightly below 11,000. 

Analysts at ICICI Direct believe the markets could form a base at current levels. “The markets are entering a truncated week and may witness some short closure if the Nifty holds above 11,000. However, till clouds over coronavirus remain, the major short-covering trend is unlikely to pan out,” says the brokerage.

Experts say traders have built huge short positions in the market. As a result, positive development often leads to short-covering, which takes the indices higher. However, given the overarching weak sentiment, the recovery is short-lived. After a bad start in 2011, the Nifty ended the year with a 25 per cent decline. Investors will be hoping that 2020 may have begun on a weak note, but ends well.