Market expert Dharmesh Shah from ICICI Direct believes the recent upmove should be viewed through a technical lens rather than as the beginning of a full-fledged recovery.
“Absolutely, the way the market has seen a bounce back, it looks like we had seen more of a technical pullback from the oversold territory. If you look at the market since 28th Feb, we have seen almost a 9% cut on the Nifty without any major recoveries or any pullbacks. What we believe is that the market seems to be taking more of a technical pullback from the oversold territory,” he said.
A Bounce, But Not a Breakout Yet
The recent recovery comes after a steep fall from 26,000 to 22,900 levels on the Nifty, a move that left markets deeply oversold. According to Shah, the current phase is more about retracement than reversal.
“Going forward, more important to watch out will be 24,400, which is again a 50% retracement of this entire fall from 26,000 to 22,900. But we believe the way the market seems to be panning out, any positive news in terms of ease of geopolitical tension or a fall in crude oil prices could augur well for the market,” he noted.
For now, the lower band remains equally crucial.
“So, in the near term, 22,900, which was the panic low, 22,950 remains the very strong support for the Nifty, which we expect to hold in this current corrective phase,” Shah added.History Suggests Limited Downside, Strong Recovery PotentialDrawing from historical patterns, Shah highlighted that such corrections, often triggered by geopolitical uncertainties, tend to follow a predictable trajectory.“But some interesting data to highlight on your channel is, if you look at the geopolitical issues for the last two decades, there have been six instances where the market has faced such type of selling pressure. The average correction has been around 10% to 11% price-wise, and time-wise it takes around four weeks,” he explained.
Encouragingly, past trends also point toward strong rebounds.
“If you look in the current context, we are already done with a 9% correction, third week is on the way. Maybe in the coming week we should see some bit of positive news happening from the geopolitical tension, some bit of ease off in this, and we see most of the time in the last two decades, six times, the market has a tendency to give a return of around 25% in the next six months,” he said.
Time to Build Portfolios?While short-term traders may continue to grapple with volatility, Shah sees an opportunity emerging for medium-term investors.
“So, we believe the way things are panning out right now, the risk-reward looks more favourable. Much of the pessimism is in the market; it is the right time to construct the portfolio. From the trading perspective, yes, absolutely it is more volatile, difficult to put stop losses, but from the medium-term perspective, from the portfolio constructor, I would say it is the right time to build the portfolio, and any dip towards 23,300 to 23,500 should be looked at as a buying opportunity,” he said.
IT Index: Relief Rally or Something More?The recent bounce in the Nifty IT index has also caught investor attention, especially after a prolonged period of underperformance. Shah, however, cautions against reading too much into the rally just yet.
“If you look at the Nifty IT index, a free fall without any major recoveries. So, it seems to be technically more of a technical bounce back from the oversold territory from 28,500, where the Nifty IT index seems to be finding support,” he said.
He believes sentiment remains fragile, with investors awaiting clarity from upcoming earnings and management commentary.
“We believe the way things are panning out for IT, too much pessimism right now. People will definitely wait for the results to come out or commentary to see how things are panning out going forward,” Shah noted.
From a technical standpoint, there is room for further upside in the near term.
“But definitely from the trading perspective, it is more of a technical pullback where we expect the index to head towards 31,500 for the IT index. So, a technical pullback — I would definitely wait and watch for the short term. From the medium-term perspective, absolutely, for portfolio construction, this is the right time to build a portfolio in the IT index,” he added.
