As of December 27, FIIs had sold shares worth Rs 656 crores through exchanges. However, it has been observed that their funds continue to flow into the primary market for stock investment.
Analyst Sudeep Shah, Vice Chairman and Head of Technology and Derivatives Research, SBI Securities, spoke to ET Markets about the outlook for Nifty and Bank Nifty and key levels to watch. Below are edited excerpts from his chat.
With Nifty ending the week near the 23,800 level, what are the immediate support and resistance areas for next week?
Talking about the important levels, the 23,550-23,500 area will act as immediate support for the index. If it continues to fall below the 23,500 level, there will be a sharp adjustment up to the 23,200 level and a short-term decline to the 22,900 level. On the other hand, the 23,950-24,000 area will act as a decisive hurdle for the index. A sustainable move above the 24,000 level would lead to a sharp pullback rally towards the 24,300 level where the 50-day and 100-day EMAs are placed.
What do you think about the difficulties the index has with its 200-day moving average in determining short-term trends?
In the December series, Nifty futures experienced a bearish rally during the first half of the month, hitting a high of 24930. However, the index then resumed its downward trend, posting its third consecutive session of negative returns. Following a sharp decline of 4.77% last week, the week was relatively calm with the index trading within a narrow range. Notably, Nifty formed a Doji candlestick pattern in all four trading sessions, reflecting the indecisiveness of market participants. The index moved within its narrowest 291-point range since June 18, 2024.
Currently, Nifty is trading below the 20-day, 50-day and 100-day EMAs and is all showing a downward trend. For the last four sessions, the index has been hovering around the 200-day EMA (23,694). Meanwhile, the daily RSI is below the signal line and remains in bearish territory.
This indicates the overall bearish momentum of the index.
Is Bank Nifty positioned above 200 DEMA a better bet? What trends do you expect?
Bank Nifty has outperformed the broader indices but the index remains in a consolidation phase, hovering between 51,790 and 50,609 in the last six sessions. It is currently trading near the 100-day and 200-day EMAs, with both moving averages flattening due to a prolonged sideways move.
Momentum indicators, including RSI, reflect no directional bias, indicating that the index is in neutral territory. A decisive break above 51790 or below 50609 could trigger a significant move and determine the next trend.
Until then, Bank Nifty appears to be in a wait-and-see mode and a breakout is likely to set the tone for the next rally or correction.
FIIs have been showing steady selling pressure of late and selling has been witnessed despite low volumes. How might these trends affect market sentiment, and what sectors could be hit by this sell-off?
Continued selling by FIIs even during periods of low trading volume signals a cautious stance and may dampen overall market sentiment. These trends often trigger widespread risk aversion, leading investors to reduce their exposure, especially in sectors sensitive to global flows and economic cycles.
Sectors likely to be under pressure:
Technically, sectors like oil and gas, automotive, media, PSEs, CPSEs and metals are poised for short-term selling pressure. These sectors, which are often dependent on global demand, commodity prices and policy changes, are more vulnerable to FII movements.
As FIIs continue to reduce positions, we expect volatility in the sector to increase as stock-specific actions are driven by technical levels and broader market signals. A change in sentiment may be seen if FIIs come back as buyers or DIIs absorb selling pressure.
What does the series rollover data from December to January suggest about traders’ expectations? Are we seeing higher sell positions being carried forward?
Rollover data from December to January reflects the sentiment of cautious traders as Nifty recorded its third consecutive negative series. Rollover was 77.66%, down from 79.34% but higher than the three-month average of 76.62%. The absolute share price decreased from 128 lakhs to 120 lakhs, indicating a decline in convictions.
The increase in rollover costs to 0.72% (compared to the average of 0.65%) means that higher short positions are being carried forward, indicating a bearish bias of the trader. With Nifty resuming its downtrend after a brief rally, traders appear to be bracing for continued weakness in the near term.
Are there any sectors or stocks that are suitable for taking a position based on rollover data?
Rollover data suggests that Nifty Pharma and Nifty Healthcare are likely to perform better in the near term. Among the components of Nifty Pharma, Ipca Laboratories is likely to see a sharp uptrend. The stock recorded a rollover of 92.09%. Also on a technical note, the stock saw a horizontal trendline breakout accompanied by strong trading volume. So, it is likely to test Rs 1730 level in the near term followed by Rs 1800 level.
What does seasonality indicate for Nifty in January series?
If we track seasonality, over the last 17 years, January has often seen a negative trend for the Nifty. On 11 occasions, the index closed on a negative note with an average decline of 4.79%, and on 6 occasions it closed on a positive note with an average gain of 5.67%. The average return of Nifty in the January series was -1.10%. Over the past 17 years, January has consistently seen an average volatility of 9% for the Nifty index.
Are we likely to see a recovery or further consolidation in early 2025?
Technically, the index is expected to consolidate with a bearish bias in the early weeks of 2025.
Do you think global uncertainty is still weighing heavily on the Indian market?
Yes, global uncertainty continues to weigh on Indian markets, especially with policy uncertainty growing since Donald Trump took office as US President. The strengthening of the dollar index has proven to be a huge problem for all emerging market currencies, including the INR which has plummeted to record lows.
Do you recommend stocks and sectors that are well-prepared for the coming year?
Technically, Nifty Pharma, Nifty Healthcare and Nifty IT are likely to perform better in the coming years.
(disclaimer: Recommendations, suggestions, views and opinions provided by experts are their own. It does not represent the views of The Economic Times)
