F&O Talk | Nifty rally unsustainable on some big names, broader participation needed: Rahul Ghosh of Hedged.in

Indian benchmark indices experienced a bearish session on Friday, giving up most of their intraday gains but still ending slightly higher, signaling a cautious start to the January series.

The S&P BSE Sensex rose 226.6 points, or 0.29%, to settle at 78,699, while the broader Nifty 50 index gained 63.20 points, or 0.27%, to close at 23,813.40.

Analyst Rahul Ghosh, founder of Hedged.in, spoke to ET Markets about key levels on the index along with outlook for Nifty and Bank Nifty. Following is an edited excerpt from their chat:

With the Nifty ending the week close to the 23,800 level, what are the immediate support and resistance zones for the coming week?

December’s weekly close formed a neutral candle, indicating indecision between buyers and sellers. This is typical for late December, as market activity slows down due to the holiday season. For the short-term, market support is seen around the 23,200-23,300 range. There is a small pro-gap in this area, where a good bounce was seen in November 2024. However, the bounce is expected to be short-lived, given that the price did not rise significantly from this support level. High probability of further decline towards the next support levels of 22,900–22,600.

On the upside, the 24,500-25,000 range is identified as a strong resistance zone. The 25,000 level is particularly important due to the large open interest (OI) built up in call options, which suggests that the index is unlikely to breach this level in the near term.

What is your view on the index’s struggle to determine its near-term trend with the 200-day moving average?

It is clearly a negative sign. In recent instances, whenever the indices have approached the 200 DMA, they have bounced back strongly. This is what is expected from a healthy market. However, recent price action around the 200 DMA has been shown by neutral to indecisive candles.

This, coupled with the fact that the RSI level is hovering around 34-35, further suggests that a critical break below the 200-day moving average is likely.

Note that Reliance Industries (RIL), which has the highest weightage in the Nifty index, is below the 200 DMA. Most of the Nifty 50 components are also trading below the 200 DMA. HDFC Bank and select IT stocks have helped the index continue in the last few trading sessions.

An index cannot sustain a boom based on just a few names. Broader participation is required.

Is Bank Nifty placed above 200 DMA a better bet? What trend do you predict?

Bank Nifty floats mainly due to HDFC Bank’s outperformance. Rest of the banks, like SBI, Axis Bank, IndusInd Bank, and many others, are in a strong downtrend and are also trading well below the 200 DMA. Sooner or later, Bank Nifty may also give way. Technically, a break below the 49,600 level is likely to trigger a sharp decline in the Bank Nifty.

FIIs have recently shown continued selling pressure despite thin volumes. How might this trend influence market sentiment and which sectors are likely to bear the brunt of this selloff?

FIIs have sold heavily in three key sectors: Oil & Gas (close to Rs 5,300 crore), Auto (close to Rs 1,800 crore), and FMCG (around Rs 1,600 crore).

All these three sectors are likely to remain under pressure. FMCG may see some support at lower levels given the quality of companies in the sector and the fact that many stocks are 30-40% below their highs. This sector is likely to recover the fastest when conditions improve.

However, the auto and oil and gas sectors may experience more selling before things normalize. For example, in the Oil & Gas sector, ONGC and Oil are forming strong bearish patterns on both monthly and quarterly charts.

What does the December-to-January series rollover data suggest about traders’ expectations? Are high short positions carried forward?

Rollover data from December to January shows cautious optimism, with marginally higher short positions being pushed forward. This suggests that traders are hedging their positions against potential downside risks, reflecting uncertainty in the near-term outlook. A pickup in rollover to higher open interest levels would signal renewed confidence, but that remains to be seen.

Are there any sectors or stocks that are worth taking positions based on rollover data?

Rollover data suggests strength in sectors such as pharmaceuticals, where positions are being extended with a positive bias. Stocks like Sun Pharma and Lupine look well positioned technically, offering opportunities for traders and investors alike. Some banking stocks, especially private banks, are also witnessing a healthy rollover, indicating upside potential. HDFC Bank and ICICI Bank look strong in the banking sector.

What is the sentiment for the January series considering technical and derivative indicators?

Sentiment for the January series appears cautiously optimistic. Key derivative indicators such as Put-Call Ratio (PCR) and Volatility Index (VIX) indicate that markets are unlikely to experience extreme volatility. However, the upside is likely to be limited until there is a meaningful recovery in FII inflows and global cues are favourable. The January series may lean towards a consolidation phase with stock-specific action dominating. Additionally, traders and investors will be watching for Trump’s immediate actions when he takes office on January 20th.

Are we likely to see a recovery or further consolidation in the early weeks of 2025?

The early weeks of 2025 may witness further consolidation as markets digest global macroeconomic developments and Q3 earnings. If there is clarity on global uncertainties, such as US Fed policy or the pace of China’s growth, a recovery is likely. Domestic factors, such as budget expectations and continued DII inflows, may provide additional support. If we look at history, it becomes clear that markets move in cycles. We saw a huge rally in Nifty from 2012-2016, followed by consolidation for one year (2016-2020) before covid hit.

By 2020-2021, the Nifty fell from 7,500 to 18,000, followed by another year of consolidation. In a similar pattern, a year of consolidation is likely to follow from 15,500 in September 2022 to 26,000 in September 2024. After all, if one wants to go far, they need to catch their breath to travel the distance. 2025 may be the year to catch your breath.

Do you see any global uncertainty still weighing heavily on Indian markets? What are your expectations from Q3 earnings?

Global uncertainties, such as US Federal Reserve’s interest rate hike, geopolitical tensions and China’s economic recovery, Trump’s policies weigh on Indian markets. As far as Q3 earnings are concerned, analysts expect sequential revenue growth for India Inc in the December quarter, supported by the festive season due to improvement in rural demand and increase in government spending.

However, headwinds such as uneven urban demand and evolving global uncertainties may weigh on growth in the second half of the fiscal year. On balance, it is expected that the operating profit margin (OPM) for India Inc will improve in the coming quarters.

Do you recommend any stocks and sectors that are poised well for the coming year?

2025 will be the year of selective stock picking unlike previous years where almost everything saw a boom. Especially in 2025, we expect to do well as a pharma sector and you have Lupine, Cipla, Dr. Reddy and IT stocks like big IT bellwether companies (TCS, Wipro, HCL Tech, Infy) and select midcaps can be closely monitored. IT Stocks. The entire IT pack is likely to benefit positively from the AI ​​boom which will only strengthen with new leadership in the US.

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