After a huge rally spanning as many as nine weeks, the bulls seem to have lost steam. The Sensex, after reaching the intra-day high of 18,047 on 7th April, has closed at 17,400 on 19th April. As Moneylife has been warning over the past week (read here http://moneylife.in/article/8/4829.htmland here http://moneylife.in/article/8/4822.html), a significant market decline is playing out. How long will this persist?
In just under a year, the Sensex has been witness to three major corrections. In all these instances, the index has shrunk 10%-15%. The first correction occurred between June and July last year. On 10 June 2009, the index hit an intra-day high of 15,580. It then entered a freefall, before hitting the intra-day low of 13,219 on 17 July 2009. This marked a 15% decline (2,361 points) in just over a month.
Another correction began after 17 October 2009, when the index hit an intra-day high of 17,493. Soon, the markets began losing steam and witnessed a dramatic decline to touch a low of 15,805 on 30th October. This meant a correction of around 10% (1,688 points).
The last major correction occurred early this year, when the Sensex shrunk by 12% in just over a month. On 6 January 2010, the index touched the intra-day high of 17,790 after a sustained rally for over two months. By 8 February 2010, the index had fallen to 15,652, marking a 2,138-point decline from the earlier high.
On an average, the market has corrected by around 12% in each of these three instances. Already, the market has begun a reversal after breaking through the 18,000 barrier earlier in the month (7th April). Putting the earlier corrections into context, if another significant correction was to play out, the index may decline by around 2,000-2500 points to a sub-16,000 level over a month. So far, we have witnessed only about 10 days of correction. Moneylife Digital Team