F&O Talk | Nifty i Consolidation, key support at 23,800: Sudeep Shah of SBI Securities

The Nifty closed down 51 points (-0.2%) at 24,148 on Friday while the broader markets ended lower, with the midcap and smallcap indices down 1.3% and 1.7% respectively at 24,148 on Friday.

The US Fed cut its benchmark lending rate by 25 bps to 4.5%, in line with expectations and in an effort to support economic growth, China’s National People’s Congress (NPC) approved an $839 billion refinancing of local government debt. This will help reduce interest payments by 600 billion yuan over five years.

FII last 29 days Rs. 1.41 lakh crore in equity sales, which has hurt investor sentiment. Markets traded in the currency on the back of mixed global factors and quarterly results.

Analyst Sudeep Shah, Deputy Vice President and Head of Technical and Derivatives Research at SBI Securities spoke to ET Markets about the market outlook. Following is an edited excerpt from their chat:

Nifty currently seems to be close to its support. Do you foresee some improvement in macroeconomic factors that could help the index bounce back?

This week, the benchmark index Nifty found support near its previous swing low zone of 23,800–23,900, reacting positively to Donald Trump’s presidential victory. However, despite the recovery, the index struggled to break above its 20-day EMA zone of 24,500-24,550, facing renewed selling pressure on Thursday and Friday.

This price action led to the formation of a high wave candle on the weekly chart, indicating clear indecision among market participants and indicating that traders are uncertain about the market’s next direction. The momentum indicators also show a similar picture. The daily RSI has been oscillating in a narrow range for the past five trading sessions. Additionally, the trend strength indicator, ADX, has been flat over the past four sessions.

These technical factors suggest that the market is likely to experience consolidation in the next few trading sessions. Talking about critical levels, the zone of 23,850-23,800 will act as an immediate support for the index. If the index slips below the 23,800 level, the 200-day EMA will act as the next important support for the index, which is currently at the 23,532 level.

Whereas, on the upside, the zone of 24,500-24,550 will act as a critical barrier for the index. Any sustained move above the 24,550 level will lead to a sharp upside rally in the index towards the 24,900 level in the short term.

How do you see Trump’s victory impacting Indian markets now?

Trump’s protectionist policies could give impetus to the China Plus One strategy, which would benefit export-oriented sectors such as pharma, IT and chemicals. Additionally, a stronger US economy under Trump could reverse the heavy outflows from FIIs/FPIs as market confidence returns.

What is your view on future Fed rate cut and its impact on global as well as Indian markets?

The Fed recently cut rates in line with its comments during its previous FOMC meeting. Financial markets expect four additional cuts of 25 bps each by 2025. This could be incrementally beneficial for emerging equity markets in the medium term.

Given the general downward trend of the market, which sector is well positioned right now?

We feel that the Nifty IT is witnessing an outperformance and may witness further strength in the coming few sessions.

After marking a high of 43,645 on September 17, Nifty IT entered a throwback phase. During the throwback period, the index has taken support near its 100-day EMA level and resumed its northward journey. Interestingly, on a weekly basis, it has formed a bullish engulfing candlestick pattern, which is a bullish signal.

The most notable thing is that a consolidation breakout has been given on the ratio chart of the index vis-a-vis Nifty. This clearly indicates strong outperformance compared to frontline indicators. Moreover, it is also trading above its short-term and long-term moving averages. Hence, we believe that the index is likely to continue its northward journey in the next two trading sessions.

Talking about levels, the zone of 41,200-41,100 will act as an immediate support for the index. Whereas, on the upside, any sustained move above the 42600 level would lead to a sharp upside rally to the 43,500 level, followed by 44,300 in the short term.

Is it still a trader’s market? Or do you think one should wait?

Right now, it’s more of a stock-specific trader’s market than a broad-based rally. While the broader market is uncertain, there remain opportunities to pick certain stocks. With the help of relative strength analysis, traders can navigate this market.

What are the key factors/events to watch out for?

The upcoming state elections and announcements by US President Trump on certain key policy issues will be keenly watched by market participants and are likely to create volatility in the market in the near term.

Any stocks that are technically well placed?

Technically Indian Hotel, Larsen & Toubro, Mahindra & Mahindra and Coforge look good.

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