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The Indian stock market has recently experienced significant volatility, marked by a substantial decline from its peaks in September 2024. The benchmark Nifty 50 index has fallen by over 14%, while the broader indices, such as the Nifty Midcap and Smallcap indices, have seen even more pronounced drops of 19% and 25%, respectively. This correction has raised concerns among investors and market participants about the overall health and direction of the Indian equity market. Sudeep Shah, Deputy Vice President and Head of Technical & Derivatives Research at SBI Securities, provides insights into the current market scenario and offers a technical analysis of the Nifty and Bank Nifty, shedding light on potential support and resistance levels. Shah's analysis delves into the factors influencing market movements, including the impact of Foreign Institutional Investor (FII) selling, sector-specific performance, and the overall technical outlook of key indices and stocks. His perspective is particularly valuable as it offers a structured approach to understanding the complex dynamics at play in the Indian stock market. The recent pullback rally of the Nifty, which saw the index gain over 700 points in just five trading sessions, encountered resistance at the 22,670-22,700 zone. This zone coincides with the 20-day Exponential Moving Average (EMA) and the 38.2% Fibonacci retracement level of the previous downward journey, creating a significant barrier for further upward movement. The index has since been consolidating within a narrow range, indicating a period of indecision and potential profit-taking. Shah suggests that the Nifty is likely to consolidate between 22,700 and 22,200 in the near term. The Relative Strength Index (RSI) oscillating in the 42-39 range and the Average Directional Index (ADX) in a falling mode further support the consolidation view, signaling a lack of strong directional momentum. Despite the consolidation phase, Shah believes that the pullback rally may still have some upward potential. If the Nifty manages to surpass the resistance zone of 22,670-22,700, it could potentially extend its gains towards the 23,000-23,300 levels. On the downside, the 22,300-22,200 zone is expected to provide support in case of any immediate decline. This analysis highlights the importance of identifying key support and resistance levels in navigating market volatility and making informed trading decisions.
The Bank Nifty, a critical indicator for the Indian banking sector, has exhibited relative weakness compared to the Nifty. While it has underperformed the frontline indices for the past six trading sessions, it has managed to hold the crucial support zone of 47,800-47,700. This level represents a make-or-break juncture for the index, with its next directional move likely to set the tone for the broader banking sector. The performance of individual banks within the Bank Nifty has been mixed. ICICI Bank, HDFC Bank, and Kotak Mahindra Bank have demonstrated strong relative outperformance, providing stability to the index. Conversely, IndusInd Bank and Axis Bank have lagged, exerting downward pressure on the overall structure. Notably, IndusInd Bank has been a significant drag on the Bank Nifty's performance, plunging over 27% in just four trading sessions due to credibility concerns. Shah identifies the 47,800-47,700 zone as crucial support for the Bank Nifty. A breach of this level could lead to a further decline towards 47,000, followed by 46,500 in the short term. On the upside, the 48,400-48,500 zone is expected to act as a significant hurdle for the index. The analysis of ICICI Bank reveals a strong outperformance relative to the frontline indices. The ratio chart of the stock compared to the Bank Nifty index has shown a consolidation breakout, indicating strong positive momentum. The stock is currently trading above its short and long-term moving averages, and the daily RSI is about to cross the 60 mark, signaling bullish sentiment. Shah believes that ICICI Bank is likely to outperform in the short term and could potentially test the levels of Rs 1280, followed by Rs 1310. On the downside, the 1230-1220 zone is expected to provide support in case of any immediate decline. In contrast, IndusInd Bank is technically in a strong downtrend, characterized by lower tops and lower bottoms. The stock is trading below its short and long-term moving averages, which are in a falling mode, indicating bearish sentiment. While momentum indicators suggest oversold conditions, Shah recommends avoiding the stock for now due to the ongoing uncertainty surrounding its credibility.
Regarding MTNL, the stock has been trading in a falling channel for the last couple of weeks. However, it recently found support near the lower trendline of the channel and subsequently witnessed a rebound following asset monetization news. Shah notes that the zone of Rs 53-54 will act as a crucial hurdle for the stock, as the upper trendline of the falling channel is located in that region. If the stock sustains above Rs 54, it could potentially rally towards Rs 63 in the short term. On the downside, the Rs 45-44 zone is expected to provide crucial support. The analysis of Foreign Institutional Investor (FII) selling reveals a reduction in outflows, although selling is still ongoing. However, the breakout in the Nifty vs. S&P 500 ratio chart and a sharp correction in the US Dollar Index (DXY) have added positive sentiment to Indian equities. Shah believes that if this trend continues and global market conditions remain stable, FII buying may pick up in the near future. He emphasizes the importance of tracking the USD-INR movement and global risk appetite to confirm a sustained reversal in FII flows. The Nifty Metal index, after a sharp breakout in the prior week, has traded in a narrow range. However, the major trend remains bullish, as the index is trading above its short and long-term moving averages. Shah suggests that if the index sustains above Rs 9,000, it could potentially witness a sharp upside rally. In contrast, the Nifty IT index has given a consolidation breakdown on a daily scale, signaling bearish sentiment. The index is currently trading below its short and long-term moving averages, which are in a falling mode. The daily RSI is also in a super bearish zone, indicating that the index is likely to continue its downward trajectory in the near term. Shah identifies Nifty Metal, Nifty Financial Services, Nifty Pharma, and Nifty Healthcare as sectors likely to outperform in the short term. He also highlights Chennai Petro, Kotak Mahindra Bank, Cipla, Sun Pharma, Lauras Labs, and Avanti Feeds as stocks that are looking promising from a technical perspective. This comprehensive analysis provides valuable insights into the current state of the Indian stock market and offers a roadmap for navigating the challenges and opportunities that lie ahead.
Source: F&O Talk | Nifty’s 700-point rebound faces resistance. Can it break through? Sudeep Shah analyses