JM Financial said the market is passing through a period of heightened pessimism, with the 22,550–22,180 range emerging as a crucial zone for the Nifty. A recovery from these levels could improve the outlook for large-cap stocks, which are expected to perform well if the market stabilises. However, if the recovery fails and the Nifty falls below 22,000, the index could face a further decline of 1,500–1,600 points over the next three months.
The brokerage's assessment highlights the possibility of continued pressure on equities if the market fails to regain stability at these critical levels.
Sharp Short-Term Decline
JM Financial noted that whenever the market has breached its 200-week exponential moving average (EMA) in recent periods, it has experienced a sharp short-term decline. However, such episodes have also created opportunities for investors to build wealth over the long term.
The domestic brokerage firm said the Nifty's market breadth has deteriorated significantly. Only 24% of stocks are trading above their 50-day moving average (DMA), while just 22% remain above their 200-day moving average. These figures indicate that market conditions are approaching a stressful phase, including for large-cap stocks.
The weakening market breadth suggests that selling pressure is no longer confined to a limited segment of equities, raising concerns about the overall strength of the market.
Market Weakness Spreads Beyond Mid-Caps and Small-Caps
JM Financial said the important concern is that the ongoing weakness is not restricted to mid-cap and small-cap stocks. The Nifty 50 has also witnessed a substantial deterioration in its internal market breadth.
The brokerage noted that a recent improvement in the 50-day moving average breadth for large-cap stocks has provided the first signs of stabilisation. However, rising market stress across different market capitalisation categories indicates that the foundation for a potential improvement in overall market breadth may be developing.
Despite these early signs, the broader market remains under pressure, with investors watching closely for evidence of a sustained recovery.
Mid-Caps Have Outperformed Large-Caps Over the Long Term
JM Financial observed that the Nifty has underperformed the Nifty Midcap 100 for an extended period. The Nifty-to-Nifty Midcap 100 ratio has remained on a declining trend since 2021, indicating that mid-cap stocks have delivered significantly better performance than large-cap stocks over the long term.
The report also stated that this ratio is approaching historical extremes. According to JM Financial, a sustained rise above these averages, followed by a move towards higher levels, would strengthen the case for a structural shift towards large-cap stocks.
This assessment places the relative performance of large-cap and mid-cap equities at the centre of the brokerage's market outlook, even as near-term volatility continues.
How Is the Stock Market Performing Today?
The BSE Sensex has fallen by more than 1,200 points from its intraday high and was trading at 72,585.92. The Nifty had declined by around 300 points and was trading below the 22,400 mark.
The Nifty Bank index has also recorded a decline of more than 1,000 points. Mid-cap and small-cap stocks have witnessed the steepest losses, with the Nifty Midcap index falling 3.16% and the Nifty Smallcap index declining 3.64%.
With the Sensex and Nifty under pressure and market breadth remaining weak, the Nifty's ability to hold the 22,550–22,180 range and avoid a decisive break below 22,000 will remain central to the near-term outlook outlined by JM Financial.
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