Why Market Stagnation is a Launchpad, Not a Dead End

Market Update - Wednesday, 18 Mar

Nifty has witnessed its third consecutive green candle, and more importantly, it is the second instance of breaking the previous two-day high. That two-day high break is a very critical metric we observe at Weekend Investing. This is the second instance of the same and a much-needed sort of breather amidst several weeks of dull outing in the Indian markets.

The global markets have also done well. Oil prices have eased a little bit despite the ongoing geopolitical tension. The fact that the global markets have done well yesterday and today speaks volumes about what we can kind of expect from the markets going into the short-term future at least.

• Moving on to the stock market performance and where the market is headed: Nifty is up 0.83%. With three consecutive green candles, we are currently at 23,777.

• It is happy to see some green taking along. Medium-term and long-term trends remain negative, but the short term turning positive is a very, very healthy sign.

• The Nifty Next 50 index is up 1%, standing at 65,668. This index has a very similar trajectory to the Nifty and was one of the most beaten-down indices along with the small-cap index. Let’s hope for a very good recovery of stocks in the times to come, though there will be plenty of resistance for all indices going forward.

• The Midcap index was up 1.87%, a phenomenal day where going past the two-day high was the major news. If we continue on this trajectory, we will potentially see some resistance levels, but today was an encouraging sign.

• The Small Cap Index was up 1.7% at 15,153, mirroring the Midcap index with a positive short-term trend while medium and long-term trends remain negative.

• Nifty Bank rose 0.82%.

• Gold and silver have entered a zone of consolidation after a good rally and a breakdown; gold is stabilizing around the 15,753 mark, and silver is around the 2.52 lakh mark after a massive correction.

Other Market Triggers

• On the Nifty Heatmaps, IT led the performance. TCS, Infosys, HCL Tech, Zomato, Wipro, and LTIMindtree all did exceptionally well, recording gains in excess of 2%. We also saw good performance across auto stocks like Mahindra & Mahindra, Maruti, and Eicher Motors.

• Except for some red pockets like Coal India, Hindustan Unilever, NTPC, and Sun Pharma, the rest of the markets were in fine fiddle. Some banking stocks experienced mixed outcomes, but the Nifty Next 50 also did really well, with green across the board except for Vedanta, Hindustan Zinc, and Adani Power.

• Movers of the day included Valiant Organics, up 20% on buying pressure, and MMTC, recording 17.89% gains following Public Enterprises Selection Board (PESB) meetings to appoint a new director.

U.S. Market Updates

• In the US, the Russell 2000, NASDAQ 100, and S&P 500 showed modest gains, though some stocks like Eli Lilly and Intel were down.

What to watch next ?

• Indian markets aligning today shows good performance across the board, with large caps, mid caps, and small caps doing really well, led by the Nifty IT indexes.

• While the markets have done well in the short term, we will have to see how we deal with these mild headwinds going forward.

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What To Read This Week ?

The Big Pause: Why Market Stagnation is a Launchpad, Not a Dead End

The market has been feeling a bit heavy lately. Since August 2021 (and again in cycles leading into 2024), we’ve seen periods where the index simply refuses to hit a new high. But before you let "sideways movement" dampen your spirits, let’s look at what history tells us about these 18-month "naps" the market takes.

The 18-Month Rule: Patterns of the Last 25 Years

Historical data from Edelweiss Mutual Fund reveals a fascinating trend. Over the last quarter-century—through the crashes of 2001, 2008, and the stagnation of 2011 and 2015—whenever the market remained flat for roughly 18 months, it was rarely the "new normal." Instead, it was a period of consolidation where the market was catching its breath after a bull run.

The "Snapback" Effect: What Happens Next?

The most encouraging takeaway from this historical perspective is what happens 12 months after that 18-month flat period. According to the data:

• Zero Negative Instances: In almost every case studied, the returns 12 months later were positive.

• The Range of Recovery: While some years saw modest gains of 1% to 10%, other cycles witnessed explosive recoveries of 72% to 81%.

• The 36-Month Horizon: Even during the 2008 financial crisis, where recovery was sluggish (only 13% after three years), the broader average for a 36-month period remains exceptionally strong.

Understanding the Market Pulse

Markets do not move in a straight line. Every massive "Bull Run" is naturally followed by a "Pause" or a "Correction." This isn't a sign of failure; it’s a sign of a healthy cycle. When the pause ends, the next leg of the bull market typically begins.

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