According to SAMCO Securities, despite the recent decline in equities and rising crude oil prices, strong historical and technical reasons exist to avoid initiating fresh short positions at this stage.
Research analysts Jahol Prajapati and Saurav Chaube pointed to two major indicators that historically signal limited downside once the market reaches the current levels.
The first is the Nifty-to-Brent crude ratio, a long-term metric that compares equity valuations with global oil prices. The ratio is currently approaching a major support zone that has historically acted as a turning point for the market.
The recent drop in the ratio has largely been driven by the sharp spike in Brent Crude Oil, which surged as geopolitical tensions escalated in the Middle East. If crude prices stabilise or retreat from current levels, the ratio could recover even if the Nifty remains broadly stable.
Such a recovery could happen through two potential paths. Oil prices could decline while equities hold steady, improving the ratio, or crude could remain elevated while equities rebound modestly. In both scenarios, analysts say the probability of a technical bounce increases, making aggressive bearish bets less attractive.
The second argument comes from historical market behaviour during sharp weekly corrections. Data shows that over the past 15 years shows that large weekly declines are often followed by stabilisation or short-term rebounds.There have been seven instances during this period when the Nifty declined by more than 5% in a single week. In most cases, the index recovered in the following weeks unless the decline was triggered by a broader systemic crisis.
On average, the Nifty delivered returns of 3.4% in the week following such declines, 3% over two weeks, 1.4% over three weeks, and 1.9% over four weeks. The probability of positive returns remained relatively high, with 71% positive outcomes over one-week, two-week and four-week periods.
The latest market drop, where the Nifty fell 5.3% in the week ended March 13, places the index in a historically similar setup, suggesting that downside momentum could begin to moderate.
Technical indicators from other brokerages also suggest that the market may be nearing a short-term exhaustion zone.
Analysts at Centrum Broking said momentum oscillators have entered deeply oversold territory, raising the possibility of a technical pullback in the near term. However, they cautioned that the broader market structure remains weak and any recovery could face selling pressure.
The India VIX has cooled by around 5% but remains elevated above 21, indicating that volatility is still high. A sustained decline below 18 would be needed for bulls to regain control, according to the brokerage.
Meanwhile, analysts at LKP Securities said the index has formed a piercing line pattern on the daily chart, a technical formation typically associated with bullish reversal signals after extended declines.
While overall sentiment remains fragile, they noted that a near-term technical rebound cannot be ruled out. On the upside, the index could move toward 23,800, while 23,200 remains the key support level. A decisive break below that level could trigger another round of weakness.
For traders, analysts say the current setup may call for caution rather than aggressive directional bets, especially with global geopolitical developments continuing to drive volatility in equities and commodities.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)