Is a stock market rebound coming in March? What historical data suggests

Indian markets have been rewriting history, but for the worse, as the Nifty 50 ended the last 10 trading sessions in the red, marking the longest daily losing streak since 1996 and losing 4% of its value during this period. The last time the Nifty 50 declined for 10 straight sessions was from December 28, 1995, to January 10, 1996. 

The index also ended the last five months in the red—an extremely rare occurrence—marking its first five-month losing streak since November 1996 and raising concerns about a potential bear market.

A majority of the market's decline was driven by overseas investors, who have withdrawn ₹3.32 lakh crore since October. Previously, a prolonged sell-off by overseas investors occurred between October 2021 and July 2022, when they pulled out ₹3.8 lakh crore, resulting in a 10.4% correction in the Nifty 50.

From its peak of 26,277 in September 2024, the index is down by 16%, making it the sixth-largest drop since the 2008-2009 Great Recession and the second-largest since the Covid-led crash in March 2020.

Heightened global trade tensions have led investors to avoid risky assets, while weak domestic cues have further dented investor sentiment, resulting in a sustained sell-off in local equities.

Donald Trump on Monday confirmed 25% tariffs on Canada and Mexico while doubling tariffs on Chinese imports to 20%. This move prompted both China and Canada to announce retaliatory measures, raising fears of a new global trade war. The tariff announcement has also cemented concerns that he may impose similar measures on India next month, which added another layer of concern to the markets.

Will there be a rebound in March?

Following the massive carnage on Dalal Street, investors believe markets have entered oversold territory, fueling hopes of a potential bounce-back in March. Supporting this view, domestic brokerage firm Axis Securities stated in its report that March has historically been a strong month for market recoveries, with an average gain of 1.7% since 2009 (excluding the 2023 outlier plunge).

According to the brokerage's analysis, the Nifty has never recorded six consecutive months of declining prices in history, suggesting a potential rebound. "Years ending in odd numbers and those following U.S. presidential elections have shown strong performance, with the Nifty rising 75% and 83% of the time, respectively, and delivering median returns of 17.1% and 21%," said the brokerage.

The Nifty has now entered a critical support zone defined by the 100-week Moving Average Envelope (+/-3%), which has historically contained declines except during extreme events like the Covid-19 crash. This suggests proximity to a potentially durable bottom.

The brokerage also noted that six out of 11 sectors are oversold based on their 14-day RSI, and all sectors are trading below their 200-day moving averages. Additionally, breadth measures for the NSE500 index are at extreme lows, with only 7.6%, 6.2%, and 10.1% of stocks trading above their 50-, 100-, and 200-day moving averages, respectively. These levels are comparable to those seen during the Covid crash, Axis Securities noted.

"The current market environment exhibits signs of excessive pessimism and fear—not without reason—which are often precursors to durable bottoms. While a clear bullish trigger is yet to emerge (this is critical), historical patterns, technical indicators, and sectoral valuations suggest that the market is nearing a medium-term bottom," said the brokerage.

Therefore, it advised investors to allocate some long-term capital between 21,700 and 22,000. "While most of us can’t catch the exact top and bottom, prudent investing is about capitalizing on opportunities, especially when sentiment is so one-sided. One such opportunity is now," it added.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.