Will the markets regain lost glory in March despite volatility?

Despite high volatility in the months of March the Nifty has ended higher in five of the last seven occasions.

Historically, March has been a volatile month for the Indian equity markets. For starters, it marks the end of a financial year, wherein there is some compulsive portfolio rebalancing trade by large funds, both domestic and foreign. Retail investors, too, prefer to 'cash-in' on their gains and losses before the financial year runs out.

That apart, markets also look to price-in the potential growth in corporate earnings for the last quarter of the fiscal (fourth quarter of the financial year) and the guidance the companies may give for the upcoming financial year.

A look at the Nifty's performance in the last month of seven financial years, i.e. March 2016 to March 2022, the median volatility of NSE benchmark index (Nifty VIX) has been a staggering 11.40 per cent. Volatility is calculated as the difference between monthly high and low divided by the median value.

If we were to exclude the extra-ordinary behaviour in March 2020, wherein the index swung in range of over 40 per cent in a single month amid Covid-induced meltdown, the average volatility still stands at a solid 6.6 per cent.

Interestingly, despite the high volatility the Nifty has ended higher in five of the last seven occasions. And, if we exclude the sharp 23 per cent fall in March 2020, the average gains in the other six occasions stand at 3.9 per cent.

Thus far in March 2023, the Nifty has lost 1.2 per cent amid fears that the US banking crisis could snowball into a bigger problem for the global financial markets, and the ensuing action by global central banks to contain the problem.

That said, most analysts expect the US Fed to go easy on its rate hike trajectory in the backdrop of the recent banking crisis the US is grappling with.

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“If the Fed does not signal its commitment to fighting inflation, long-term inflation expectations are likely to become unanchored, which could lead to an accelerating wage-price spiral. We think that a 25 bps rate hike on March 22 is most likely, despite the turmoil in the banking sector,” said Philip Marey, senior US strategist at Rabobank International.

The road ahead

So, will the markets be able to regain their lost ground before the month is over?

A lot, analysts said, would depend on the monetary policy of Bank of England and the US Federal Reserve over the next few days amid the recent developments. A positive turn of events in the latter half of the month, they believe, could be an ideal trigger for a sharp market rebound. However, they do caution that the market rally, if any, could get sold into.

“We are not entirely out of the woods and the broader trajectory remains tentative. However, we may expect some near-term bounce. The recent swing low of 16,900-16,850 is likely to act as the sheet anchor’s role. On the flip side, 17,200-17,250 is the immediate hurdle for the Nifty, followed by the sturdy wall of 200-day simple moving average (SMA) placed around the 17,400-17,450 odd zone,” said Osho Krishan, senior analyst for technical & derivative research at Angel One.

The Nifty50, analysts said, has formed a downward-sloping channel by connecting the lower-highs and lower-lows formations. After five days of selling, it took support from the lower end of the channel and formed a Doji candlestick formation, and it respected that level on Friday trading, closing above 17,100 levels.

“If it manages to hold these levels, then there is scope for a short-covering rally towards the 17,250 and 17,440 levels. On the downside, 17000 will be the first support level, while 16,800 is a critical support level,” said Pravesh Gour, senior technical analyst at Swastika Investmart.