The second half of the week was volatile and a fresh buying emerged towards the latter part of the week, primarily on Friday.
The Nifty lost 352 points over the week to close at 24,365. It started on a weak note considering global cues this week. However, it bounced back very sharply from the lower levels while the BSE S&P Sensex closed at 79,706, which was higher by 819.70 points.
Analyst Sudeep Shah, Deputy Vice President and Head of Technical & Derivatives Research, SBI Securities interacted with ET Markets regarding the outlook on Nifty and Bank Nifty along with an index strategy for the upcoming week. Following are the edited excerpts from his chat:
Markets are currently weak. Nifty and Sensex are between their 20 and 50-day EMAs, Bank Nifty barely sustaining above the 100 DEMA. What do you think is happening here?
The past week was marked by significant volatility due to several key events, including issues with the yen carry trade, geopolitical tensions in the Middle East, recession fears, and the Reserve Bank of India’s monetary policy decisions. These events resulted in almost all the sessions we have seen either a gap-up or a gap-down opening. As the index opened with gaps, it kept little trading room for the traders.
Technically, the Nifty oscillated between 20 and 50-day EMA levels of 23900 & 24400 during the week. However, in the second half of the week, it witnessed recovery after taking support near the 50-day EMA level, which helped the index to recoup some losses. It ended the week at 24,367 level with a loss of 1.42%. On a weekly scale, it has formed a small body bullish candle with a long lower shadow. The long lower shadow indicates buying interest at lower levels.
Most noteworthy in the recent decline, the RSI found support near the 40 mark and experienced a sharp rebound, which is a bullish signal according to RSI range shift rules. However, this needs to be confirmed by the price action, which will occur only if the index sustains above the 24,650-24,700 level, which is also a gap zone formed on August 05. A sustainable move above 24,700 could lead to sharp upside rally upto the level of 25,000, followed by 25,200 level.
While, on the downside, the 50-day EMA zone of 24,050-24,000 will serve as crucial support. Any sustainable move below 24,000 will lead to resume its downward trend in that case, it is likely to test the 23,700 level in the short term. Overall, we expect the Nifty to consolidate between the zone of 24,000-24,700 levels.
The markets are not exactly following the footprints of their global peers, but still there is weakness. Why is there a lack of direction?
When compared to global peers, the Nifty is demonstrating strong outperformance. From their all-time highs, the Nasdaq is down over 11%, the S&P 500 is down 6%, the Dow is down nearly 5%, and Japan’s Nikkei has declined by over 16%. In contrast, despite global uncertainties, the Nifty has only decreased by 2.83%.
This performance highlights the Nifty’s relative strength. However, the index has shown a lack of clear direction in the current week. We believe if the Nifty manages to sustain above the 24,700 level, we could see a decisive directional move in the upcoming trading sessions.
Is this weakness likely to persist in the near term?
If the Nifty slips below the 50-day EMA zone of 24,050-24,000, then we may witness further weakness in the index. In that case, the next support is placed at 23700 level. We believe that as long as the index is trading above 24000 mark, it is likely to continue its pullback rally.
Tracking Dow Futures and Gift Nifty has suddenly become all the more important than ever. How should one take call basis moves in Gift Nifty before 9 am?
Global markets are intricately connected, making it crucial to monitor international markets and their movements even after local markets close. The GIFT Nifty, which operates for 21 hours daily, aims to mirror global market price action after our market hours. However, it’s important to note that significant price action in the GIFT Nifty occurs between 9:15 AM and 3:30 PM during local trading hours. The GIFT Nifty primarily offers traders insights into potential opening trends for our markets based on overnight global developments, but it does not provide comprehensive predictions beyond this.
FIIs buying is generally seen as a sign of strength in the market, but the recent data depicts the gap between FII-DII holding being narrow now. The broader outlook of the market is still bullish despite this narrowed gap. Your views?
Foreign Institutional Investors (FIIs) view India as one of several investment options. As they sought safer returns at home, FIIs began selling off positions in emerging markets, including India, as reflected in the data. From the beginning of 2024 until the end of July, FIIs sold approximately Rs 1,19,087 crore, leading to a reduction in their holdings. In contrast, Domestic Institutional Investors (DIIs) bought around Rs 2,60,473 crore during the same period. This has fueled a market rally from about 22,000 to 25,000. Our markets are maturing and have effectively absorbed the FII selling, which is often viewed as “hot money.””
How to read the current options chain for Nifty and Bank Nifty? What does the OI data suggest?
Talking about Nifty, there is a notable concentration of call open interest at the 24400 strike, followed by 24500 strike. While significant open interest on the put side is observed at the 24300 strike, followed by 24200 strike. As per the Straddle cost of ATM strike, the range for the next couple of trading sessions will be 24653-24080 level.
Examining the Bank Nifty option chain, it’s notable that there is a concentration of call open interest at the 51000 strike, while considerable open interest on the put side is observed at the 50000 strike. As per the Straddle cost of ATM strike, the range for the next couple of trading sessions will be 51160-49805 level.
Bank Nifty is just above the 100 DEMA on charts. Do you see a bounce back from here? Or lesser deposits resulting in a flattish performance of banks further lead the index to stagnate?
Since the last five trading sessions, the Bank Nifty has been oscillating between 100 and 200-day EMA levels. It has also witnessed high volatility as almost each trading session of the week it has either witnessed gap-up or gap-down opening.
Talking about the Bank Nifty constituents, the short-term trend of Axis Bank, ICICI Bank, and Indusind Bank is bearish. HDFC Bank, which is holding the highest weightage in the index is in sideways to bullish trend. This divergence is helping the Bank Nifty to sustain at the current level despite selling pressure in other frontline banks.
Going ahead, the 100-day EMA zone of 49700-49600 will act as immediate support for the index. Any sustainable move below the level of 49600 will lead to resume its southward journey. In that case, the next support is placed in the zone of 49100-49000 level. While, on the upside, the 50-day EMA zone of 50700-50800 will act as an immediate hurdle for the index. Any sustainable move above the level of 50800 will lead to a sharp short-covering rally in the index.
With global turbulence, are there any defensive sectors to aim for?
Technically, Nifty Pharma and Nifty Healthcare are strongly outperforming the frontline indices. We believe it is likely to continue its outperformance in the short term.
Nifty FMCG has formed a strong base near the 20-day EMA level. Going ahead, if it sustains above the level of 62600 level, then we may witness the sharp upside rally in the FMCG space.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)