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The Nifty 50 index, India's benchmark stock market index, took a brief pause on Friday, snapping a six-day winning streak. Despite a 100-point correction from its highs, the Nifty still closed in the red, registering a new record high and nearly testing levels of 26,300. This sluggish session didn't prevent the Nifty from achieving its third consecutive weekly advance, setting the stage for a strong end to September. The six-day rally saw the index gain almost 900 points, marking its fourth straight positive F&O series.
The upcoming week, which concludes the quarter, will be crucial for the Nifty's performance as companies start releasing their business updates for the preceding period. These earnings reports will play a key role in determining the sustainability of the Nifty's record highs. The Nifty Bank, a significant contributor to the recent rally, is particularly noteworthy, with its performance potentially dictating the index's direction. Concerns about rising credit card defaults cast a shadow over major banks, potentially influencing their performance.
Beyond domestic factors, geopolitical tensions in the Middle East pose another significant challenge. The escalating conflict between Iran, Israel, and Hezbollah, marked by attacks on Lebanon, could affect oil prices and, in turn, the Indian market's oil-sensitive sectors. Additionally, the US jobs data scheduled for October 4 will be closely watched. US markets have been on a strong rally since the Fed rate cut, with Wall Street indices also experiencing their third consecutive weekly gain. However, the pace of this rally seems to be slowing down, as seen in the underperformance of the S&P 500 and Nasdaq on Friday.
Domestic investors were active buyers in the cash market on Friday, while foreign investors were net sellers. These numbers are likely to be skewed due to the Nifty indices and CPSE rebalancing on Friday, which impacted stock flows. Two new entrants, Trent and BEL, will begin trading on the Nifty from Monday, while LTIMindtree and Divis Laboratories will be excluded.
Technical analysts have mixed opinions on the Nifty's near-term outlook. Nagaraj Shetti of HDFC Securities, citing the long bull candle formed on the weekly charts, believes the uptrend may continue. However, he anticipates some consolidation in the next few sessions before the uptrend resumes, with downside support at 25,900. Amol Athawale of Kotak Securities recommends a short-term trading strategy of buying on dips and selling on rallies, with crucial levels at 26,100, 26,000, and 26,400-26,500. He advises traders to exit long positions if the Nifty dips below 26,000.
Praveen Dwarakanath of Hedged.in maintains an optimistic view, projecting a target of 26,500 for the Nifty. Options data for the October expiry indicates increased put writing and short covering in In-The-Money and Out-of-the-Month calls, suggesting continued bullish momentum. The Nifty Bank, facing selling pressure on Friday, was a contributing factor to the Nifty's pause and red close. The index shed nearly 550 points from its recent rally of over 3,000 points, closing below 54,000. However, it still managed to post gains for the week. The Nifty Bank's performance will be critical for determining the Nifty's trajectory during the October series.
Hrishikesh Yedve of Asit C Mehta Investment Intermediates observes a bearish Marubozo candle on the Nifty Bank's daily charts, indicating weakness but noting that the index remains above the breakout point of the rounding bottom pattern. He anticipates immediate hurdles at 54,000 and 54,500 for the Nifty Bank, with a potential dip towards 53,350-53,400 levels. Yedve recommends considering this dip as a buying opportunity.