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The Indian stock market, as reflected by the Nifty index, experienced its first weekly loss in four weeks, primarily driven by a sharp sell-off in the US markets following a disappointing August jobs report. This sell-off impacted Indian stocks, with the Nifty closing below the 25,000 mark for the first time since August 23rd. The decline was exacerbated by specific concerns within the Indian market, particularly in the banking and IT sectors.
The US market sell-off, which saw the S&P 500 experience its worst week since March 2023, had a ripple effect on Indian equities. The Nasdaq Composite, which suffered its worst week in two years, posed a particular concern for IT stocks, which had recently seen a significant surge. While Morgan Stanley remained optimistic about the continued rally in IT names, citing TCS, Infosys, and LTIMindtree as top picks, the Friday sell-off in the Nasdaq hinted at potential headwinds for this sector.
However, the immediate pressure on the Nifty came from the banking sector. The Nifty Bank index, which had outperformed the Nifty until Thursday, faced a steep decline, losing almost 1,000 points and dropping below the crucial support level of 51,000. SBI, India's largest lender, was downgraded by Goldman Sachs, triggering a sell-off in its stock and affecting other lenders as well. Broader market sentiment towards Indian banks also shifted towards caution, with Morgan Stanley recommending a more selective approach.
The Nifty, now hovering around a critical support level of 24,850, faces immediate downside risks. Technical analysts predict that a break below the 24,770 level could lead to further declines, potentially reaching 24,350. The Nifty's weekly chart exhibits an engulfing candle, indicating bearish sentiment, while RSI divergence suggests potential further downside. Despite this, there are hints of potential support around the 24,760 level, with a break below that potentially leading to a further dip towards 24,600. Kotak Securities also highlights a long bearish candle formation on the intraday charts, suggesting a correction from current levels.
The Nifty Bank, meanwhile, is facing a weak sentiment, with Kotak Securities predicting further declines as long as it remains below its 20-Day Moving Average (51,000). A break below this level could push the index to 50,000 or even 49,600. A move above 51,000, however, could trigger a pullback rally towards 51,300 - 51,450. The coming week will be crucial for the Indian stock market as investors assess the impact of the US market sell-off and navigate the concerns arising from the banking sector.
Source: Trade Setup for September 9: Nifty set for further jitters after US market sell-off?