F&O Talk: Geopolitical Tensions Push Nifty Below 50 DEMA – Buy or Wait? Sudeep Shah of SBI Securities explains

The recent milestones of Nifty50 at 26,000 and Sensex at 85,000 were short-lived as Middle East headwinds and shifting of FII funds to cheaper Asian markets weighed on investor sentiment.

During the week, these benchmark indices fell more than 4% with broad-based declines in sectors such as auto, banking, infrastructure and energy.

However, the US The IT index remained relatively unaffected following the Federal Reserve’s more dovish stance, buoyed by an improving revenue and spending outlook. Additionally, stimulus measures in China have had a positive impact on metal stocks.

Sudeep Shah, Deputy Vice President and Head Analyst, Technical and Derivatives Research, SBI Securities, spoke to ET Markets about the Nifty and Bank Nifty outlook and index strategy for the coming week.

Following is an edited excerpt from their chat:

The Nifty is below the 20 DEMA, and Friday’s candlestick indicates that the bears may be taking over. What do you think are the main factors that cause vulnerability?

Firstly, the Nifty has seen a strong upward rally in the last two months, without any major time-wise and price-wise corrections. This has left many momentum indicators in the overbought zone and last month, the monthly RSI also reached 83, a sign of extreme overbought conditions.

Second, rising geopolitical tensions in the Middle East have driven crude oil prices up sharply over the past few days. Rising oil prices put pressure on the market.

Finally, SEBI’s recent changes in the derivatives market are also adding to the vulnerability. Together these factors are contributing to weakness in Nifty.

How should retail investors respond to increased volatility due to macroeconomic and regulatory factors? What steps should they take?

Retail investors should take a cautious approach and avoid overleveraging positions. Also, we would recommend avoiding bottom fishing in the mid and small caps space during periods of heightened volatility.

It is also important to set a stop-loss to protect against significant losses, as this can help minimize losses in a highly volatile market. A stop-loss acts as a safety net, allowing investors to manage risk and prevent emotional decisions during sharp market swings.

The market crashed because of the Iran-Israel conflict. But traditionally, all such dips are purchased. Combining this aspect with technical aspect, Nifty is also slightly below 50 DEMA. What should be done in such a placement? Buy or wait?

We would recommend to wait now as Nifty has slipped below its 20 and 50-day EMA. Also, it sustained below the 50 percent Fibonacci retracement level of its previous rally above (23,893-26,277). Momentum indicators and oscillators also indicate weakness. The daily RSI is poised to slip below the 40 mark, and is in a bearish position. Hence, it would be wise to remain patient until clear technical signals of a possible reversal appear.

How do you see China’s aim to boost its economy affecting Indian markets in terms of foreign fund inflows?

We believe that China’s efforts to boost its economy could change the flow of foreign funds in the near term. If these policies attract global investors, inflows into Indian equities may decrease. However, the effectiveness of China’s initiative needs to be monitored.

If China’s recovery appears weak, India may remain attractive due to its strong fundamentals.

What is your opinion on HDFC Bank?

HDFC Bank gave a symmetrical triangle breakout on September 12 and since then, it has witnessed a sharp reversal of over 8% in just 10 trading sessions. However, it is Rs. marked a high of 1,788 and has since seen a sharp correction of over 7% in just 6 trading sessions. Along with this decline, the stock has slipped below its 20 and 50-day EMA levels. The daily RSI is poised to slip below its 40 mark and is in falling mode.

Going forward, Rs. The zone of 1,635-1,630 will act as immediate support for the stock as the 100-day EMA and previous swing low are placed in that region. Rs. Any sustained move below the 1,630 level could result in a short-term Rs. The 1,580 level will lead to further selling pressure. While, on the upside, the resistance is Rs. There has been a lower shift in the zone at 1,690-1,700 levels.

What is your view on Bank Nifty?

From the all-time high, banking benchmark index Bank Nifty has improved by nearly 3000 points or 5.42% in just 6 trading sessions. With this sharp decline, the index has slipped below its 20 and 50-day EMA levels. This average has started the lower edge. Additionally, the rising slope of the 100 and 200-day EMAs has slowed significantly. Additionally, the daily RSI has given a trendline breakdown, which is a bearish sign.

Going forward, the 100-day EMA zone of 5,1000-50,900 will act as immediate support for the index. Any sustained move below the 50,900 level will lead to further correction in the index. In that case, the zone of 50,400-50,300 will act as a crucial base for the index. While, on the upside, the 50-day EMA will act as an immediate barrier for the index, which is currently placed in the 51,900-51,950 level zone.

What are your thoughts on RIL?

Reliance Industries has been a significant underperformer across key indices in recent months. Reliance’s ratio chart against the Nifty has now hit a 55-month low, indicating continued weakness relative to the broader market.

Additionally, it has recently given an upward sloping trendline breakdown on a daily basis with high volume. Furthermore, it has slipped below its 200-day EMA level for the first time since November 2023. Momentum indicators and oscillators also indicate bearish momentum. Daily RSI is in bearish territory and is in falling mode.

Hence, we believe that he should continue his southward journey and Rs. 2,700 level is likely to be tested, followed by Rs. 2,650. On the upside, the 200-day EMA will act as a major hurdle for the index, which is currently trading at Rs. is at the level of 2,865.

Do you foresee retail participation shifting towards stock options?

Yes, SEBI’s new guidelines, especially the margin requirements and contract sizes for index options, may encourage retail traders to shift to stock options. Stock options often require less capital, which may appeal to retail participants seeking low-risk, low-margin options.

What do you think about a better opportunity? Index or Stocks?

We believe that stock-specific opportunities present better prospects than index trading, primarily because a broader stock basket offers more choices and flexibility. Stocks allow for targeted strategies, enabling investors to select technically strong companies or sectors. In contrast, index trading provides broad exposure but limits the ability to capitalize on specific outperformers. With careful stock-picking, higher returns are possible.

Nifty IT is trading in green but the index is still in consolidation phase. Do you see any opportunities for investors there?

Nifty IT has outperformed the frontline indices in the last week. The ratio chart of Nifty IT compared to Nifty has been marking highs for the last four trading sessions. This indicates strength in the sector, presenting potential opportunities for investors.

Going forward, the zone of 42,600-42,700 will act as an immediate barrier for the index. Any sustained move above the 42700 level will lead to a sharp upside rally to the 43,300 level, followed by 43,800 in the short term.

Likewise, does pharma provide any such opportunities?

Nifty Pharma has also outperformed the Frontline Index in the last week. Going forward, the zone of 23,500-23,600 will act as an immediate barrier for the index. Any sustained move above the 23,600 level would lead to a sharp upside to the 24,000 level, followed by 24,400 in the short term. Whereas, on the downside, the zone of 22,750-22,700 will act as an immediate support for the index.

Are there specific sectors that may see further declines in the near future?

Technically, Nifty Bank, Nifty Financial Services and Nifty Realty appear bearish. We may see more selling pressure in these areas.

Watch out for any defensive areas?

Technically, Nifty Healthcare, Nifty Pharma and Nifty IT have been outperforming the Frontline Index for the past two trading sessions and should be on traders’ radar.

(disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. (These do not represent the views of The Economic Times)