With Nifty 50’s RSI below 30, analysts debate if the market is set for recovery or further decline

The Indian stock market has recently experienced significant downturns, prompting discussions about whether it has entered oversold territory. Between September 2024 and February 2025, the Nifty 50 index declined by approximately 14%, marking its longest losing streak since 1996. This decline has led to a loss of around $1 trillion in investor wealth.

Understanding ‘Oversold’ Conditions

In financial markets, an asset or index is considered ‘oversold’ when its price has fallen sharply to a level deemed below its intrinsic value. Technical analysts often use the Relative Strength Index (RSI) to identify such conditions. An RSI below 30 typically indicates an oversold status, suggesting potential for a price rebound.

Current Technical Indicators

As of March 4, 2025, the Nifty 50 index closed at 22,082.65, down 0.17% from the previous day. The RSI for Nifty 50 was reported below 30, indicating oversold conditions. Additionally, only 7.6% of stocks were trading above their 50-day moving average, 6.2% above their 100-day moving average, and 10.1% above their 200-day moving average, reflecting a broad-based market weakness.

Factors Contributing to the Decline

Several factors have contributed to the recent market downturn:

Foreign Investor Sell-Offs: Since September 2024, foreign investors have sold approximately $25 billion worth of Indian equities, seeking better returns in other markets. ​

Economic Slowdown: India’s economic growth has decelerated, with projections indicating a slowdown to a four-year low of 6.4% for the current fiscal year.

Corporate Earnings: The October-December quarter saw a mere 5% growth in corporate profits for Nifty 50 companies, marking the third consecutive quarter of single-digit increases. ​

High Inflation: Persistent inflation has eroded consumer purchasing power, leading to reduced spending and impacting corporate revenues.

Is the Market Oversold

The combination of a prolonged decline, low RSI readings, and a significant percentage of stocks trading below key moving averages suggests that the Indian stock market may indeed be oversold. Historically, such conditions have often preceded market recoveries. For instance, during the COVID-19 crash, similar technical indicators were observed before a subsequent rebound.

Outlook and Potential Recovery

Analysts have mixed views on the market’s recovery prospects. Some predict that the Nifty 50 could rise to 24,000 by mid-2025 and 25,689 by year-end, while the BSE Sensex might reach 80,850 by the end of 2025. However, these projections are tempered by concerns over ongoing economic challenges and corporate earnings growth.

The Indian stock market’s recent performance, characterized by significant declines and technical indicators pointing to oversold conditions, suggests potential for a rebound. However, external factors such as foreign investor behavior, economic growth rates, and corporate earnings will play crucial roles in determining the market’s trajectory in the coming months.