Index Outlook: More room to fall for Sensex and Nifty 50 before a reversal

Equity markets are under pressure. The outcome of the US Federal Reserve meeting last week has triggered a sharp fall in the global equities. The Fed increased the rates by 50 basis points as more in line with the market expectation. However, the central bank had kept the doors open for more rate hikes in 2023. This indicates that the Fed is still more hawkish and not intended to slow down the rate hikes as against the market expectation.

The Indian benchmark indices, the Sensex and Nifty fell sharply towards the end of the week giving back all the gains. Both the indices are down over a per cent for the week. Among the sectors, barring the BSE Oil & Gas index (up 0.6 per cent), other indices have closed in red last week. The BSE Consumer Durables index, down 2.56 per cent, was beaten down the most. This was followed by the BSE IT index which fell 1.9 per cent.

FPIs buy

The Foreign Portfolio Investors (FPIs) were net buyers of the Indian equities last week. They had bought $733 million in the equity segment. For the month of December, there has been a net inflow of $1.28 billion into the Indian equities. This is a positive. If the FPIs continue to buy, then that can limit the downside in the Sensex and Nifty.

Nifty (18,269)

The support at 18,360 held initially last week as expected. However, bounce from the low of 18,345.70 failed to breach 18,700. Nifty fell sharply from the high of 18,696.10 giving back all the gains. The index has closed the week at 18,269, down 1.23 per cent.

The week ahead: The near-term outlook is weak. Nifty can fall further this week. Immediate resistance is at 18,350 and 18,400. Above that 18,500 is the next strong resistance. Nifty can fall to 18,100-18,000 this week. If a break below 18,000 is seen, then there can be an extended fall to 17,900 and 17,800.

However, the broad region between 18,100 and 17,800 is a strong support zone. The chances are high for the Nifty to sustain above 18,000 itself. Also, a fall beyond 17,800 is unlikely even if it declines below 18,000. As such we can expect the Nifty to reverse higher anywhere from the 18,100-17,800 region. Such a reversal can take the Nifty up to 18,400-18,500 initially and then 18,700-18,800 eventually in the coming weeks.

Chart Source: MetaStock

Medium-term outlook: The recent fall is just a correction within the overall uptrend. As mentioned above, a fall beyond 17,800 is less likely. A fresh rally from the 18,100-17,800 will keep the uptrend that has been in place since June intact. That will have the potential to take the Nifty up to 19,400-19,600 initially and then to 20,300-20,500 eventually in the coming months.

This bullish view will come under threat only if Nifty breaks below 17,800 decisively. In that case, a fall to 17,500 can be seen.

Trading strategy: Hold on to the long positions taken at 18,250. Accumulate at 18,050. Retain the stop-loss at 17,800 and follow the same strategy. Trail the stop-loss up to 18,600 as soon as the index moves up to 19,100. Revise the stop-loss further up to 19,100 when Nifty rallies to 19,950. Book profits at 20,100.

Sensex (61,337.81)

Sensex failed to see a sustained break above the key level of 62,250. It has come off sharply from the high of 62,835.11 giving back all the gains. Sensex has closed the week at 61,337.81, down 1.36 per cent.

The week ahead: The near-term outlook is bearish. Immediate resistance is at 61,600. As long as the Sensex trades below 61,600, the outlook is negative to see a fall to 60,600-60,400 this week. We expect the fall to halt here and the Sensex to reverse higher again. A bounce from the 60,600-60-400 support zone can take the Sensex up to 61,600 again in the short term.

Chart Source: MetaStock

Medium-term outlook: A strong medium-term trendline support is at 59,000. This level can be tested if Sensex break below 60,000 decisively. Such a fall, if seen, will be a good buying opportunity from a long-term perspective. As long as the Sensex sustains above 59,000, the medium-term outlook will continue to remain up. We retain our long-term bullish view of seeing 64,500-65,000 initially and then 66,000-66,500 eventually in the coming months.

Nifty Bank (43,219.50)

The rise to 44,000 happened last week in line with our expectation. However, the Nifty Bank index has failed to get a strong follow-through buying above 44,000. The index made a high of 44,151.80 and fell sharply giving back all the gains made during the week. Nifty Bank has closed at 43,219.50, down 0.95 per cent for the week.

Chart Source: MetaStock

A crucial support is immediately available at 43,000. Whether the index is sustaining above it or not will determine the next move. A break below 43,000 can drag the index down to 42,500 and even 42,000 in the coming weeks.

On the other hand, if Nifty Bank manages to sustain above 43,000 and bounces back, it can revisit 44,000 levels again. A decisive break above 44,000 will then pave way for further higher levels.

As such, the price action around 43,000 will need a close watch this week to get a cue on the next move.

Key supports

18,100-17,800 on the Nifty

60,600-60,000 on the Sensex

32,500-32,000 on the Dow Jones

Global cues

The Dow Jones Industrial Average (32,920.46) began the week on a positive note. It broke above 34,000 and surged to a high of 34,712.28. But the index came under pressure and got beaten down badly after the Fed meeting. The Dow has closed the week at 32,920.46, down 1.66 per cent for the week.

Chart Source: MetaStock

The near-term picture is weak. Immediate resistance is at 33,000. Above that cluster of resistances are poised in the broad 33,500-34,000 region. A fall to 32,500 and even 32,000 in the worst case looks possible. Cluster of moving average supports are poised in between 32,500 and 32,000. As such, a fall beyond 32,000 is less likely. We can expect the Dow to bounce back again from the 32,500-32,000 region targeting 33,000 and 34,000 again.

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