The Nifty’s Rollercoaster Ride: What’s Next?
The stock market never moves in a straight line. Investors who closely follow Nifty’s trends know that history often repeats itself — but with a twist.
After a small Head & Shoulders (H&S) pattern* triggered a correction in late-2024, many are wondering: Is this just another dip, or the start of a prolonged downturn? Let’s analyze past trends and current market dynamics to uncover what could be next.
*A non-textbook pattern because it was unusually disproportionate
The Past: Volatility and Patterns
After COVID-19, Nifty formed a small Head & Shoulders (H&S) pattern in Q4 of CY2021. While the price target was quickly met, market volatility persisted.
This correction later evolved into a complex pattern, resulting in another small H&S formation in Q2 of CY2022. Once again, the price target was reached swiftly.
Both H&S patterns became part of an extended complex Zigzag correction (Elliott Wave), lasting 35 weeks from mid-Oct 2021 to mid-Jun 2022.
For Elliott Wave analysts, these H&S formations may have seemed incidental, but they played a key role in market movements.
Following this, it took 23 weeks for Nifty to reattempt its previous peak, but without success. However, after 88 weeks, in June 2023, it finally broke above that high.
Market Correction and Recovery Timeline
| Time Period | Duration | Event | Impact on Nifty |
|---|---|---|---|
| Mid-Oct 2021 – Mid-Jun 2022 | 35 weeks | Correction Phase | 18% decline |
| Mid-Jun 2022 – Early-Dec-2022 | 23 weeks | Recovery to Breakeven | Nifty regains losses |
| Early-Dec-2022 – Late-Jun 2023 | 30 weeks | Consolidation and Breakout Phase | Nifty surpasses previous high |
| Mid-Oct 2021 – Late-Jun 2023 | Total: 88 weeks | Complete Cycle | Correction, recovery and breakout |
| First 58 weeks | Non-smooth “Cup” formation | ||
| Last 30 weeks | Non-smooth “Handle” formation | ||
| Fibonacci numbers refresher → 21, 34, 55, 89 | |||
See: non-traditional Cup & Handle chart pattern in the Nifty in Jun-2023
Foreign Institutional Investors (FII) Activity
| Time Period | Duration | FII Activity | Impact on Nifty |
|---|---|---|---|
| Mid-Oct 2021 – Mid-Jun 2022 | 35 weeks | ₹ 247,000 crores outflows | Nifty down 18% |
| Mid-Jun 2022 – Early-Dec-2022 | 23 weeks | ₹ 82,000 crores inflows | Nifty up 24% to breakeven |
| Early-Dec-2022 – Late-Jun 2023 | 30 weeks | ₹ 79,000 crores inflows | Consolidation and recovery to breakeven |
| Mid-Oct 2021 – Late-Jun 2023 | 88 weeks | ₹ 85,000 crores net outflows | Nifty just before breakout |
| Fibonacci numbers refresher → 21, 34, 55, 89 | |||
Market Movers Between 2021-2023
During the correction (Oct-2021 – Jun-2022)
- Uncertainty from COVID-19 and new variants
- Rising inflation due to supply chain disruptions
- Interest rate hikes signaled by central banks
- Strong corporate earnings, but future growth concerns
At the breakout (Jun-2023)
- Central banks signaled rate cuts, boosting sentiment
- Inflation moderated, easing market fears
- Economic growth remained strong with robust earnings
- Sectors like technology, automotive, and FMCG led the rally
The Breakout and Its Impact
Nifty’s breakout in June 2023 triggered a 38% rally, culminating in a peak of 26,277.35 on September 27, 2024 — delivering a 29% CAGR.
This surge followed the breakout of a Cup & Handle pattern (or a skewed Ascending Triangle) in June 2023. Nifty reached its projected price target within 41 weeks and continued its ascent for another 24 weeks before encountering resistance at a key Fibonacci extension level.
At its peak, the Market Cap-to-GDP ratio soared to 1.46, indicating an overvaluation of at least 30% — if not more.
The Present: Another Correction Unfolding
In September-October 2024, a small, unconventional Head & Shoulders pattern appeared at the peak of a rally, aligning with a critical Fibonacci price level. Despite its atypical structure, it served as a warning signal. The pattern was confirmed in Oct-2024, swiftly reaching its price target, and Nifty has remained in a correction phase ever since.
Key Market Trends Driving This Correction
- China’s Monetary Stimulus: A major stimulus package in Sep-2024 may have triggered flight of capital from India.
- India’s Slowing GDP Growth: India’s GDP growth slowed to 5.4% in Q2 FY2025 (news released on 29-Nov-2024), marking a two-year low. However, the latest update reveals a rebound to 6.2% in Q3 FY2025 (news released on 28-Feb-2025).
- Global Uncertainty: Political regime changes in the US and new reciprocal tariffs impacting sentiment.
- Corporate Earnings Corrections: Aligning with realistic growth expectations.
- Sectoral Winners: Technology, e-commerce, fintech, and renewable energy benefiting from government reforms.
- Government Policies: Budget 2025 aims to boost consumer demand while maintaining fiscal discipline.
- Monetary Policy: Repo rate cuts creating favorable conditions for liquidity and investment.
Current Correction Metrics as of 28-Feb-2025
- Nifty decline so far: 15.88% in 22 weeks, triggered by a H&S pattern
- FII outflows: ₹ 224,000 crores in 22 weeks, triggered by China’s major monetary stimulus
FII Investments in India
As of February 15, 2025, Foreign Institutional Investors (FIIs) hold over ₹ 64.77 lakh crores in India’s equity market. However, with market declines between 15-Feb and 28-Feb, this figure could be lower.
Since the market peak in September 2024, FIIs have sold ₹ 2.24 lakh crores, have seen their collective asset value drop by nearly 17%, yet retain a significant ₹ 64.77 lakh crores invested in equities.
| Top 10 Sectors | Value – ₹ Crores | Percentage |
|---|---|---|
| Financial Services | 1,933,679 | 30% |
| Information Technology | 678,374 | 10% |
| Automobile and Auto Components | 471,157 | 7% |
| Healthcare | 446,659 | 7% |
| Oil Gas & Consumable Fuels | 444,814 | 7% |
| Fast Moving Consumer Goods | 366,455 | 6% |
| Capital Goods | 301,377 | 5% |
| Telecommunication | 290,820 | 4% |
| Consumer Services | 274,237 | 4% |
| Power | 217,780 | 3% |
| Subtotal | 5,425,352 | 84% |
| Total | 6,477,847 lakh crores | 100% |
For comparison, as of January 31, 2025, the total Mutual Fund AUM stood at ₹ 67 lakh crores. Given the recent market downturn, this number is likely lower now.
India’s nominal GDP for FY2025 is projected to be ₹ 324 lakh crores, while the NSE market capitalization as of February 28, 2025, is ₹ 380.52 lakh crores.
This brings the Market Cap-to-GDP ratio to 1.17, suggesting that the market is still somewhat overvalued — possibly by another 5% or so — even after factoring in an estimated GDP growth rate of 6-6.5%.
What’s Next? Can Nifty Recover?
- Faster Decline: The current fall has been sharper than 2021-22, but smaller in magnitude.
- Quick FII Selling: Institutional investors have exited faster this time, yet overall outflows remain lower than the previous cycle.
- Potential Base Formation: Based on historical trends, Nifty may take anywhere from 1 to 12 weeks more to establish a bottom. After that, it could require additional time to consolidate, build a strong base, and recover before signaling a breakout.
- Challenging the Highs Again? If history repeats itself, Nifty could take another 32-36 weeks or so to test previous peaks. That points to Q4 of CY2025.
Conclusion
While the Nifty’s recent correction has been steep, a recovery could be in the making. If historical patterns repeat, and past trends hold, consolidation and recovery over the next two to three quarters could set the stage for another bullish phase. Investors should stay informed, track sectoral trends, and prepare for potential market shifts.
Keeping an eye on sentiment indicators like the Bullish Percent Index and Sector Bell Curve will be crucial.
Elliott Wave Theory and Nifty: A Simplified Analysis
According to Elliott Wave (EW) Theory, Nifty may have started a long-term upward trend (Impulse wave) from its COVID-19 low of 7511.10 on March 24, 2020.
If we suppose this movement follows a Cycle-degree Impulse wave, it should break down into five Primary-degree waves.
Nifty’s Elliott Wave Breakdown
First Wave (Uptrend)
- Peaked at 18,604.45 on October 19, 2021
- The net price movement was 11093.35
- Lasted 574 days (82 weeks)
Second Wave (Correction)
- Bottomed at 15,183.40 on June 17, 2022
- A complex correction lasting 241 days (35 weeks)
- The net price movement was 3421.05
- The weekly gross price movement was 20,233 (5.9x)
Third Wave (Uptrend)
- Peaked at 26,277.35 on September 27, 2024
- Traded extensively around the 61.8% Fibonacci extension (~22,039) before elections in May-2024
- Stalled exactly at the 100% Fibonacci extension target (~26,276) before China’s monetary stimulus impacted markets in Sep-2024
- The net price movement was 11093.95, equaling the 1st wave!
- Lasted 833 days (119 weeks)
All these three waves have collectively taken about 235 weeks. Too close to another Fibonacci number — 233. Will the Nifty continue to mimic Fibonacci numbers? Only time will tell.
Current: The Fourth Wave (Ongoing Correction)
Nifty is currently in the 4th Primary-degree wave, a corrective phase. Since the 2nd wave formed a complex zigzag correction, the 4th wave is likely to develop as a flat correction (simple or complex) or possibly an Elliott Wave triangle. The pattern will unfold with time.
Expected Price Movement
- As of 28-Feb, the net price movement of the 4th wave stands at 4,172 points.
- The current weekly gross price movement is 11,709 points (2.8x the net movement).
- To match the 2nd wave, the 4th wave should see a gross price movement of at least 20,000 points.
- If the 4th wave forms a flat pattern or an Elliott Wave triangle, the expected gross price movement should ideally range around 35-50,000 points.
- This would translate to anywhere between 1x and 2.5x the gross price movement of the 2nd wave.
Expected Duration
- If history repeats itself, the 4th wave could take anywhere between 35 and 88 weeks to complete.
- Nifty could break above 25,000 as early as Q3 of CY2025, and could perhaps challenge the previous peak (26,277) by Q4 of CY2025 (if the correction is an expanded flat).
Expected Retracement Levels
- Typically, Wave 4 retraces 38.2% to 50% of Wave 3.
- Key levels to watch:
- 22,039 (38.2% Fibonacci retracement) ← This is an ideal level for the 4th wave to bottom out, and we’re almost there!
- 20,730 (50% Fibonacci retracement) ← If selling pressure increases due to negative news, then Nifty could drop to this level.
Key Support Zones for Nifty
- 22,039 – 38.2% Fibonacci retracement
- 21,281 – Early June 2024 support level
- 21,137 – January 2024 support level
- 20,900 – Elliott Wave channel support
- 20,730 – 50% Fibonacci retracement
What This Means for Investors
💡 Smart money could start entering in the 22,000-20,900 range, where buying interest may pick up. Any breakout above 22,800 right now could also see the entry of smart money.
Meanwhile, China’s stock markets, which had seen a surge in trading volumes since September 2024, have been moving sideways for months now. If they fail to break out, then this may impact global capital flows again, including into Indian equities.
In summary, while Nifty is in a corrective phase, historical patterns suggest a potential recovery by late 2025, with highs above 25,000 becoming a possibility in Q3 of CY2025 itself.
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