Most global indices are near bear territory. Will the Sensex, Nifty follow?

Empirical analysis of past 17 market corrections in excess of 10 per cent, according Antique Stock Broking, suggests that market recoveries are swift with entire losses getting recouped in 3-6 months

The faster-than-expected rise in interest rates by the US Federal Reserve (US Fed) shook the global financial markets in early 2022. The recent geopolitical conflict between Russia and Ukraine sent commodity prices soaring with Brent crude oil prices hitting a 14-year high of $140 a barrel. All this has sent global equity markets into a tailspin over the past few weeks.

The Dow is now in a correction (-10 per cent from the peak) and the NASDAQ in a bear market (-20 per cent); the German DAX is on the cusp of a bear market year-to-date (-19.2 per cent); the Nikkei is in a correction mode (-12.4 per cent), data shows. Closer home, the Nifty has tumbled around 15 per cent from its 52-week high level of 18,604.45.

An index or a stock is said to be in a ‘bear phase/territory’ when it falls 20 per cent or more from its peak level. A 'correction' is when it is down 10 per cent - 20 per cent from its recent peak.

The recent turn of events, analysts said, are a cause for concern and if the satiation aggravates and take oil prices higher, it will have a negative impact on India that imports nearly 85 per cent of its annual oil requirement. This, in turn, will put pressure on the economy and can take the markets into a bear phase.

“Indian markets have comparatively fallen less as domestic institutions and retail investors lent support at a time the foreign investors were selling. A bulk of flows into India are from emerging market (EM) funds. The constraint for India is oil and a rise in prices will weigh on the sentiment. Indian markets are on the cusp of a bear market. If the war does not sort itself out, then the markets can enter into a bear phase. A 5 per cent fall for the Nifty50 from here on is not a big deal,” said Jyotivardhan Jaipuria, founder & managing director, Valentis Advisors.

On its part, the government has kept the petrol and diesel prices unchanged despite the skyrocketing crude oil prices in the backdrop of the assembly polls. Experts believe with the polls now over, a sharp hike in fuel prices to the tune of Rs 13 – 26 per liter in petrol and diesel is possible.

“The situation is quite fluid. It is difficult to take a call, but a further downside in the markets from the current levels is not ruled out. I suggest traders wait out this period, while investors should look for buying from a medium-to-long term perspective,” said Vaibhav Sanghavi, co-CEO, Avendus Capital Public Markets Alternate Strategies.

Empirical analysis of past 17 market corrections in excess of 10 per cent, according to a note by Antique Stock Broking, suggests that market recoveries are swift with entire losses getting recouped in a three – six month period and the recovery is usually led by capital goods, metals and banks. 

“The past four market corrections due to war also indicate that market recoveries during such events are even sharper with average market performance from trough in 1-month / 3-month / 6-month is 18 per cent / 31 per cent / 33 per cent, respectively. Overall we believe that given sharp correction from the October 2021 peak, there may be limited downside at current levels, unless the Russia - Ukraine crisis worsens,” said Pankaj Chhaochharia, India equity strategist at Antique Stock Broking.