With Indian equities in an absolute free fall and virtually everyone, from the Armani-clad expert on TV to the paan-chewing neighborhood broker prophesying an impending apocalypse, things couldn’t have looked bleaker for the small retailer investor. With virtually all doomsayers predicting a four-digit Sensex in the near future, the capitulation is clearly visible.
But considering that the majority has always been proven wrong in financial markets, may be it’s the apt time to load up your portfolio, what with valuations of even the bluest of the blue chips of India Inc at mouth-watering levels. But it is not just some chest-thumping last-ditch attempt at motivating the bleeding bulls but some raw data and technical facts that point towards the possibility that the worse may be over for the Indian equity market.
Less than two years back, in the summer of 2006, the situation was exactly the same. After closing at a then all time high of 3,754 on the May 10, the Nifty went for a bungee jump losing 29% before finally bottoming out at 2,633 on June 14.
This loss of 1,121 points was a 78% retracement of the rally that had started on October 28, 2005 at a level of 2,316 on the Nifty. In technical analysis, the 78.6% retracement is seen as a significant support level and the fact that it was not violated augured well for the Nifty. The result? All doomsayers were thrown out of the window as the Nifty went on to make a new lifetime high within the same calendar year, gaining more than 50% from its lows.
What is significant though is the precise similarity that the current crisis has with the correction of May-June 2006. After hitting a new all time high of 6,357 on January 8, the Nifty is witnessing a savage correction losing 29% by close on March 17, which is exactly the same that it lost before bottoming out during the correction of 2006.
But the point that is of more importance is that this loss of 1854 points is an exact 78.6% retracement of the rally that had started from the lows of August 17, 2007 at a level of 4,002 on the Nifty. And so, if the closing levels of March 17 are not violated, we may be headed for the mother of all bull runs.
So, if you believe in history, this may be once in a lifetime opportunity to buy Indian stocks as the Nifty may just have bottomed out on Monday. Moreover, with things looking slightly brighter in the US, over-exuberant Dalal Street’s bears may soon be in tears.
But considering that the majority has always been proven wrong in financial markets, may be it’s the apt time to load up your portfolio, what with valuations of even the bluest of the blue chips of India Inc at mouth-watering levels. But it is not just some chest-thumping last-ditch attempt at motivating the bleeding bulls but some raw data and technical facts that point towards the possibility that the worse may be over for the Indian equity market.
Less than two years back, in the summer of 2006, the situation was exactly the same. After closing at a then all time high of 3,754 on the May 10, the Nifty went for a bungee jump losing 29% before finally bottoming out at 2,633 on June 14.
This loss of 1,121 points was a 78% retracement of the rally that had started on October 28, 2005 at a level of 2,316 on the Nifty. In technical analysis, the 78.6% retracement is seen as a significant support level and the fact that it was not violated augured well for the Nifty. The result? All doomsayers were thrown out of the window as the Nifty went on to make a new lifetime high within the same calendar year, gaining more than 50% from its lows.
What is significant though is the precise similarity that the current crisis has with the correction of May-June 2006. After hitting a new all time high of 6,357 on January 8, the Nifty is witnessing a savage correction losing 29% by close on March 17, which is exactly the same that it lost before bottoming out during the correction of 2006.
But the point that is of more importance is that this loss of 1854 points is an exact 78.6% retracement of the rally that had started from the lows of August 17, 2007 at a level of 4,002 on the Nifty. And so, if the closing levels of March 17 are not violated, we may be headed for the mother of all bull runs.
So, if you believe in history, this may be once in a lifetime opportunity to buy Indian stocks as the Nifty may just have bottomed out on Monday. Moreover, with things looking slightly brighter in the US, over-exuberant Dalal Street’s bears may soon be in tears.
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