The first reactions on the Union Budget last week from the Indian benchmark indices were positive. Both the Sensex and Nifty 50 began the week on a positive note and rose sharply after the Budget on Tuesday. Though the upmove extended on Wednesday as well, the rally fizzled out towards the end of the week. Both the Sensex and Nifty fell-back from their week highs, raising doubts about whether the Budget impact was over. The indices, however, have closed in the green, snapping the two-week fall. Sensex has closed at 58,644.82, up 2.53 per cent for the week. Nifty rose 2.42 per cent and has closed at 17,516.3.

Among the sectoral indices, barring the BSE Oil & Gas index (down 0.33 per cent) all other indices closed in the green. The BSE Metals (up 6.91 per cent) and BSE Consumer Durable (up 5.31 per cent) were the top performing sectors in the past week.

The outcome of the Reserve Bank of India’s monetary policy meeting on Wednesday will be a key event to watch in the coming week. That could set the stage for the Indian benchmark indices, going forward.

FPI: Sell-off continues

The Foreign Portfolio Investors (FPIs) continue to remain net sellers of Indian equities. They had sold $1.159 billion last week. FPIs have pulled out $4.71 billion in January, the highest since March 2020. Indian equities have seen FPI outflows in the last four consecutive months and it looks like the trend is continuing in the month of February as well. FPI sell-off can cap the upside in the Indian benchmark indices and can continue to keep them under pressure for a sharp fall anytime.

Nifty 50 (17,516.3)

Nifty surged to a high of 17,794.6 on Wednesday but then fell back in the next two days, giving back some of the gains made during the week. The index has closed at 17.516.3, up 2.42 per cent.

The week ahead: The immediate outlook is mixed. Support is at 17,400 and resistance is at 17,800. A breakout on either side of 17,400-17,800 will determine whether Nifty can go up to 18,000-18,200 or will fall back to 17,000 in the near term. Our preference and bias are negative to see a break below 17,400 and a fall to 17,000. We will have to wait and watch.

Medium-term outlook: The 18,000-18,200 level mentioned above is a very crucial resistance zone. Above that 18,500 is the next important hurdle. As such the broad 18,000-18,500 zone will be the strong resistance for the Nifty from a medium-term perspective. As long as the Nifty stays below 18,000 or 18,500, the broader bias is bearish to break 17,000 and see a fall to 16,000 in the coming weeks. Inability to breach 18,000 from here and a subsequent sharp fall below 17,000 will indicate a double-top formation on the charts. That will also keep our overall bearish view intact of breaking below 16,000 and extending the fall to 15,000-14,500 in the coming months.

Trading strategy: Traders who have taken short positions at 17,450 and 17,650 can hold it. The average holding rate is at 17,550. We had recommended this trade only for traders with high risk appetite, assuming a high volatility in the Budget week. The trade strategy remains the same. Retain the stop-loss at 17,870. Trail the stop-loss down to 17,320 when the index moves down to 17,050. Revise the stop-loss further down to 17,060 as soon as the index falls to 16,850. Book profits at 16,700.

Sensex (58,644.82)

Sensex broke above the key level of 59,000 last week but failed to sustain higher. The index made a high of 59,618.51 and has come off below 59,000 again. Sensex has closed the week 2.52 per cent higher at 58,644.82.

The week ahead: The strong pull-back from the high of 59,618.51 is negative. However, supports are at 58,500, 58,275 and 58,000. A strong break below 58,000 will bring the index under pressure to fall towards 57,000 – the next important short-term support level. On the upside, a strong break above 59,500 is needed to regain bullish momentum. Such a break can take the Sensex up to 61,000 and 61,200 in the coming days. Overall, the immediate outlook is mixed. We can look for a range of 58,000-59,500. A breakout on either side of this range will be key in deciding whether Sensex will go up to 61,000-61,200 or fall to 57,000.

Medium-term outlook: The broad region between 61,000-62,000 will continue to remain as a crucial medium-term resistance. As long as the index trades below 62,000 the bias continues to remain bearish. As such we can expect a break below 57,000 and see a fall to 55,000 initially. Thereafter an eventual break below 55,000 will then pave the way for a much steeper fall to 53,000 and 52,000 in the coming months. A strong break above 62,000 is necessary to negate the above-mentioned fall and turn the overall outlook bullish.

Nifty Bank (38,789.35)

The Nifty Bank index had risen sharply last week, breaking above the resistance at 38,520 which we had expected to hold. The index surged to a high of 39,425 and has come off from there to close the week 2.92 per cent up at 38,789.35.

The stop-loss of 39,150 placed on the short-positions entered at an average rate of 38,035 has been hit.

If the index sustains below 39,000, a fall to 38,000-37,500 is possible. However, a strong break below 37,500 will be needed to bring the index under pressure and turn the outlook bearish for a fall to 37,000 and lower. As long as the Nifty Bank index sustains above 37,500, the view is bullish to see a rise above 39,000 and test 40,000 on the upside. The level of 40,000 is the next crucial resistance to watch. The price action around 40,000 will need a close watch.

Global Cues

The Dow Jones Industrial Average (35,089.74) surged breaking above the key intermediate resistance level of 35,500 in the first half of the week. However, the index failed to sustain higher and had come-off sharply from the high of 35,679.2 giving back some of the gains. The index has closed at 35,089.74. Immediate support is at 34,750 and then the next strong one is at 34,000. If the Dow manages to sustain above 34,750, the chances are high for it to rise back above 35,000 and see a rise to 37,000 in the coming weeks. The Dow will have to fall below 34,000 decisively to become bearish for a fall to 33,000.

What to watch
17,400-17,800 range on Nifty
58,000-59,500 range on Sensex
RBI meeting and FPI money flow
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