Mumbai, April 11: Market breadth shows that domestic stock indices have passed an “Extreme Stress Zone” and marked a rewarding entry point for investors with a historical median one‑year forward return of over 17.5 per cent, a report said on Saturday.
‘Extreme Stress Zone’ is reached when over 70 per cent of Nifty 500 stocks trade below their 200‑day moving average and it indicates that fear has overwhelmed fundamentals in the markers, the report from Vallum Capital said. Indian markets are in the ‘Extreme Stress Zone’ or ‘Capitulation Zone’ as over 71.3 per cent of Nifty 500 stocks are trading at this level.
The report said that the recent correction has seen a clear divergence in risk sentiment across market caps with small‑caps underperforming large‑caps by more than 1,000 basis points, with about 61 per cent of those stocks down over 10 per cent and median returns at ‑17 per cent. Mid‑cap segment saw roughly 51 per cent of the stocks falling over 10 per cent, while large‑caps remained the most resilient with only about 32 per cent dipping over 10 per cent.
“One of the most high-signal indicators of the current recovery is the unprecedented velocity of normalization in energy prices. Historically, crude oil shocks are protracted affairs. Analysis of seven major shocks over the last 46 years reveals a median duration of 30 weeks for prices to stabilise,” the report noted.
The global mechanism for absorbing geopolitical friction has shifted from months to weeks, as the supply shock during the US-Iran war lasted a mere nine weeks. India’s price-to-earnings (PE) premium over Emerging Markets (EM) has undergone a significant compression, moving from a 2022 peak of 1.57x to a current level of 0.38x, the report said.
IANS
