The Nifty 50 index wrapped up the February trading series on a downturn, with the Software & Services sector facing significant challenges, closely followed by Oil & Gas. On the other hand, Banking & Finance emerged as the top-performing sector, with Metals & Mining not far behind. A mere 17.06% of stock futures managed to close positively this month, a notable drop from the previous month’s 25.11%. However, February 2024 saw a remarkable rebound with a 65% positive closing rate.

Sector Performance Overview

In terms of rollovers, Crompton, United Spirits, JSW Steel, and Godrej Consumer Products led the pack, while Manappuram, Berger Paints, Escorts, and Supreme recorded the lowest activity. The healthcare, oil & gas, cement, and banking sectors experienced the highest rollover rates, contrasting sharply with the lower figures in chemicals and infrastructure.

• Highest Rollovers: Crompton, United Spirits, JSW Steel, Godrej Consumer Products
• Lowest Rollovers: Manappuram, Berger Paints, Escorts, Supreme

Long Buildup Insights

There was a notable long buildup in sectors such as consumer durables, chemicals, telecoms, and metals, indicating a positive sentiment among investors. As we approached the expiry week, it became evident that both Nifty and Bank Nifty rollovers were at their lowest in three months. This suggests that traders were hesitant, waiting until the last moment to decide on rollovers. The Nifty’s rollover rate peaked at 83.5%, while Bank Nifty showed an increase to 81.64%, up from 79.13% in January.

Historical Trends and Market Seasonality

Historically, since 2014, the Nifty 50 has recorded 15 instances of back-to-back negative monthly closures. In 60% of these scenarios, the third month yielded an average return of 5%. Moreover, since 2004, there have been 7 instances where both January and February ended negatively, with 70% of those cases leading to an average return of 6.4% in March.

The Midcap and Smallcap indices present a contrasting narrative. Since 2016, following two consecutive months of declines, these indices have rebounded over 70% of the time in the subsequent month, averaging an 8% return. However, when both January and February showed negative returns, more than 50% of the time, March also reflected negative performance.

Nifty 50’s Current Position

The Nifty 50’s current trend mirrors a historical pattern, marking only the second instance since inception where it has recorded five consecutive months of declines, the first being in 1996 with a 26% drop. During that time, it took three months to recover 75% of the losses. Incredibly, the Nifty has only once fallen for more than five consecutive months, which occurred in 1994 with an over 30% decline.

Market Outlook and Sentiment

Despite the absence of traditional indicators signaling a reversal, the broader market’s performance in the last hours of trading shows promising signs. Approximately 70% of Nifty 50 stocks and 58.2% of Nifty 500 stocks ended the week on a positive note. It’s noteworthy that 57% of small-cap index stocks also closed positively in that timeframe.

• Positive Close: 70% of Nifty 50 stocks
• Small-Cap Resilience: 69.7% of small-cap stocks bounced back by at least 1% from their day’s low

Currently, the Nifty is positioned on an internal trendline established post-September 2024, and it recently dipped below the lower Bollinger Band for the first time since the 50-day SMA began its downward trend. This situation may not immediately halt the declines but suggests a potential for mean reversion in the near future, especially as it approaches the 21,851 mark, correlating with the 23% Fibonacci retracement from the COVID low to the 2024 peak.

Conclusion

As we navigate through these market fluctuations, investors should remain vigilant and consider historical trends alongside current data to make informed decisions. The resilience shown by various sectors may pave the way for recovery, but cautious optimism is advised.

For further insights on market trends and analysis, feel free to explore additional resources or consult with financial advisors to tailor strategies that fit your investment goals.