By Anand James

Nifty has now fended off multiple attempts to set off on a downside spiral, with momentum fizzling out on every attempt to scythe through the 23000 support. Clearly, the market is clinging to some hope, as the budget announcement is near. It is noteworthy that 67% of the time in the last 12 years, the week before the Union Budget, has been negative for Nifty50 with an average return of around -2%. During these 12 years, 75% of the time, the week after the Union Budget has been positive for Nifty 50 with an average gain of around 2.7%. In addition, 75% of the time when Nifty 50 saw negative returns 1 month prior to the Union budget, we saw an average return of 7% in the next 3 months.

We are in the Q3 earnings period and only around 30% of the companies in Nifty 50 have come out with their results and only around 30% have reported quarterly profit growth (YoY). Meanwhile, 28% of the Nifty 50 companies are coming out with Q3 earnings next week with a focus on auto majors like Maruti Suzuki, Tata Motors, Bajaj Auto, and TVS Motor. That said, it cannot be forgotten that 75% of the time in the last 8 years, mid-cap 150 and small-cap 250 have fallen an average of 3% and 4% respectively in February.

Will history repeat?

This is the first time after 2001 that the Nifty 50 is falling for the fourth consecutive month. In 2001, the Nifty 50 fell an average of 6% in four months from July to September and was followed by a 5% upside in the following three months. This time around Nifty is down close to 2% as we move into the last week of the fourth month. If Nifty50 recovers and closes for the month positively, we will be looking at different statistics. Since 2000, Nifty50 saw 13 instances of 3 months of consecutive downside and around 70% of the time, we saw an average 3% upside in the next three months. What stands in the way of the upside hopes is the fact that 58% of the time February months have seen negative returns for Nifty50 in the last 12 years.

With a 2% negative return so far, January appears to end the same way as December which also closed 2% down. But despite the consecutive negative months, it must be noted that unlike October 204, which saw a 6.2% fall, the subsequent months’ close have not been too deep in the red, pointing to the presence of buying interest. This is visible as we head into the budget week, which usually rides on positive expectations despite history pointing to muted reactions on the budget day as well as deeper cuts in February. However, given the parallel consolidation that we are in, for the last few days, we are encouraged to look for a positive surprise that could aim for 23,850-23,950. Negative surprises, in the event of rejection trades yet again from 23,400 or a direct fall below 22,940, could aim for 22,260, but the prospects of the same look limited for now.

Auto to slide further

The profit booking that started in September 2024 is still continuing in Nifty Auto and the minor consolidation that we saw in November and December seems to be over. The Nifty Auto index has broken below the consolidation support of 22,550 and 38.2% Fibo level (May 2023 low and Sep 2024 high) this week, forming a bearish weekly Marubozu candle. The MACD has broken below the signal line on the monthly scale as well, hinting at more downsides in the coming weeks. Auto majors like Maruti Suzuki, Tata Motors, Bajaj Auto and TVS Motor are scheduled to come out with their Q3 earnings next week which will keep the sector in focus. We expect the Auto index to move towards 20,950-924 levels in the coming weeks while a trend reversal is expected only on a push above 24,200 levels.

Financials to find support soon

The Nifty Financial Services Index has been in a profit-booking mode since October 2024 and looks to be nearing the rising trendline that has been in place since March 2023. Since March 2023, whenever the 14-month RSI of the index moved into the range of 60-56, we have seen a recovery. This time around the RSI is at 58 and we are very close to the rising trendline support 22,200. Expect a recovery attempt sooner than later in Financials backed by banking majors like HDFC Bank, SBI, Kotak Bank, and Bajaj twins which are also scheduled to come out with their earnings numbers next week.

(About The Author: Anand James is the Chief Market Strategist at Geojit Financial Services.)

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