The 57% pattern: What 2 decades of Nifty data reveals about stock market cycles

Time of India

a day ago

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The Nifty 's 17% surge from April lows may be just the opening act of a much larger performance, if two decades of market data holds true. India's equity benchmark index Nifty, after enduring two consecutive quarters of battering from October 2024 to March 2025, has staged what appears to be a textbook rebound. But here's the kicker: historical patterns suggest the rally that began from April 7 lows of 21,744 has massive firepower left in the tank.Over the past 21 years, every major correction of 10% or more, particularly those spanning at least one quarter, has set the stage for spectacular recoveries. The average 12-month bounce-back? A jaw-dropping 57%."Average recovery post-correction stands at +32% over 6 months and +57% over 12 months," according to Bajaj Broking's analysis. Even when stripping out the statistical outliers of the 2008 Global Financial Crisis and 2020 COVID crash, the adjusted averages remain compelling at 25% over six months and 38% over 12 months.The current 2025 recovery cycle has already delivered a 17% return from the April lows, perfectly in line with historical averages for this stage of the bounce-back cycle."This pattern highlights a strong tendency for reversion to the mean in Indian equities post sizable corrections, even in the absence of macroeconomic tailwinds," Bajaj Broking noted, pointing to what appears to be an inherent resilience in Indian markets.What makes this cycle particularly intriguing is the confluence of supportive factors that weren't present in previous rebounds. The US dollar has slumped to its lowest level in more than three years, hitting 96.86 on the DXY Index — a development that historically turbocharges emerging market assets.Elara Securities highlights a crucial historical correlation: "Since calendar year 2000, bearish DXY cycles have lasted 2–4 years. With a year into the downcycle, US fiscal challenges mounting, and questions over Fed's independence, we expect the weak DXY phase to last at least another 1.5 years."The data is striking: in each of the eight years when the DXY fell more than 5%, the Nifty posted positive returns with a median gain of 34%. This year, despite a 9% DXY decline, the Nifty is up a modest 7.5% year-to-date."If past patterns hold, an additional 8–10% upside appears plausible," Elara Securities concluded.What makes this cycle unique is the rare concurrence of a weak US dollar and soft crude oil prices. Elara Securities' analysis shows that since 2000, a 1% fall in the DXY Index and Brent crude led to approximately 1.5% and 0.2% rise in the MSCI EM Index, respectively."The current conjunction of falling USD and moderating crude oil prices is a perfect milieu for EM economies, especially India," the brokerage noted. "In the past 25 years, during episodes of DXY being below 100, India's equities have outperformed every other asset class, including Nasdaq and gold."From a technical standpoint, Bajaj Broking expects the Nifty to "maintain positive bias and gradually head higher towards the all time high placed around 26,000-26,200 levels in the coming month."The index has rallied for four consecutive months, though some consolidation cannot be ruled out at higher levels. Key support is placed at 24,800-25,000 levels, representing the confluence of the 20-day exponential moving average and recent range breakout area.Axis Securities' Neeraj Chadawar believes the upcoming earnings season will be critical for further market direction. "The management commentaries and guidance are critical for the further direction of the market," he said."If the two upcoming events — trade-related uncertainty easing further and the absence of major negative surprises in Q1FY26 earnings — play out as expected, the market is likely to make a new high in the upcoming earnings season," Chadawar added.For investors, the historical precedent offers a clear roadmap. "The rebound observed in the current cycle mirrors historical post-correction dynamics, suggesting further upside potential over the next two quarters," Bajaj Broking concluded.The recommendation is tactical: "Investors may consider using any interim pullbacks as strategic entry points, particularly in fundamentally resilient sectors."With the Nifty having delivered 17% of what history suggests could be a 57% total recovery, and with favorable global conditions aligning, the rally that began in April may indeed have much more room to run.: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)