Nifty 50 ended the February series on a negative note with Software & Services being the biggest laggard followed by Oil & Gas. Banking & Finance was the best performing sector followed by Metals & Mining this month. In February, only 17.06% of stock futures closed positively, a decrease from 25.11% in January. Meanwhile, February 2024 saw almost four times the positive closing rate of 65%.
Highest rolls were seen in Crompton, United Spirits, JSW Steel and Godrej Consumer Products while lowest rolls were seen in Manappuram, Berger Paints, Escorts and Supreme.
Sector-wise, healthcare, oil & gas, cement, and banks saw the highest rollovers, while chemical and infrastructure had the lowest. We saw the highest long buildup in consumer durables, chemicals, telecoms, and metals, signalling optimism in these industries.
Going into the expiry week, we had noted that rollovers of both Nifty and Bank Nifty were at the lowest in the last three months. It appears that traders were waiting for the last moment possible before deciding on whether to roll over not. Incidentally, at 83.5, Nifty had the highest rolls in the last three months. Bank Nifty’s rollover was 81.64%, up from 79.13% in January.
Seasonality odds
Since 2014, Nifty 50 has experienced 15 instances of two consecutive months of negative closing. In 60% of these cases, the third month showed a positive return, averaging 5%. Additionally, since 2004, Nifty 50 has seen 7 instances where both January and February had negative returns, with 70% of these instances resulting in an average 6.4% return in the following March.
However, the Midcap and Smallcap indices tell a different story. Since 2016, when the Nifty Midcap150 and Smallcap250 indices experienced two consecutive months of decline, more than 70% of the time, the following month saw an average return of 8%. Conversely, when both January and February had negative returns since 2016, more than 50% of the time, both indices saw negative returns in March.
Since inception, this is the second time Nifty 50 has fallen 5 months in a row after 1996 when Nifty50 declined 26% and took 3 months to recover 75% of the decline. Since inception, Nifty50 has dipped only once for more than 5 months in a row. It was in 1994 that Nifty50 declined for 8 consecutive months falling more than 30%. During this instance, the first five-month dip was around 22% which is more than what we have seen in the last five months (-15%).
Nifty outlook
With no signs of usual indicators stepping up to signal a reversal, we looked at how broader market responded in the second half, and especially in the last of hour the week. We found that 70% of Nifty 50 stocks and 58.2% of Nifty 500 stocks closed with a green candle in the last hour. Signs of emerging risk appetite can also be read into the fact that 57% of small cap index stocks had a green candle in the last hour. Infact 69.7% of small cap index stocks bounced atleast one percent from the day’s low and 21.6% of them rose atleast three percent from the day’s low, an impressive fight back given all the doom and gloom.
Nifty is now resting on the internal trendline that has been guiding the trend post September 2024. Also, the index has closed below the lower Bollinger band for the first since 50-day SMA turned lower the previous uptrend attempt. This key SMA also coincided with the upper Bollinger band, and it took 16 days a 7% decline to the lower Bollinger band now. While this does not signal stoppage of declines right away, it does raise the possibility of a mean reversion move, sooner than later. This argument is supported by the fact that we are not far from 21,851, the 23% fibo retracement of the covid low to 2024 peak move.
First published in Financial Express