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Nifty 50, Nifty Bank index and the Sensex began the week on a positive note. The benchmark indices witnessed a rise initially last week in line with our expectation to test their respective resistances. However, the sell-off in the US markets which intensified after the inflation data release on Wednesday weighed on the Indian markets towards the end of the week. The Dow Jones Industrial Average in the US tumbled over 2 per cent last week. That, in turn, dragged the Indian benchmark indices lower on Friday. The Sensex, Nifty 50 and the Nifty Bank index fell sharply on Friday giving back all the gains and closed the week on a flat note.
Among the sectors, the BSE Metals index outperformed last week by rising 2.76 per cent. The BSE Oil & Gas and BSE Realty index were up 1.48 per cent and 1.4 per cent respectively. The BSE Consumer Durables and the BSE HealthCare index were down 0.88 per cent and 0.8 per cent respectively.
The short-term picture is weak. The Dow Jones has room for more fall from here. That can keep the Indian markets also under pressure. However, key supports are there for the Nifty, Nifty Bank index and the Sensex which can limit the downside and produce a rise again.
FPI flows
After selling in small quantum for three consecutive weeks, the foreign portfolio investors (FPIs) turned net buyers of Indian equities last week. The equity segment saw a net inflow of $1.64 billion last week. If the quantum of inflow increases, then that would help in limiting the downside in the Sensex and Nifty.
Nifty 50 (22,519.40)
The resistance at 22,800 was tested last week. Nifty touched a high of 22,775.70 and fell sharply giving back all the gains. It has closed the week on a flat note at 22,519.40
Short-term view: The outlook is weak. Resistance can be around 22,700. Immediate support is at 22,300. Below that 22,200 and 21,900 are the next important supports. Nifty can test 22,200 this week. A break below it can see an extended fall to 22,000-21,900. For now, we expect the downside to be limited to 21,900.
So, Nifty can see a bounce back again either from 22,200 itself or from around 21,900. That leg of upmove can take it back up to 22,800 and 23,000 in the short term.
Graph Source: MetaStock
Medium-term view: As long as the Nifty stays above 21,900, the uptrend will remain intact. So, as of now we retain the view of the Nifty rising to 23,200 and 23,650 first. As we have been cautioning for some time, the chances are high for the Nifty to top out around 23,650. A reversal thereafter can drag the index down to 22,000 and 21,500.
If the sell-off intensifies, then the downside can extend even up to 20,000-19,500. From a long-term perspective, the fall to 20,000-19,500, if seen, will be a very good buying opportunity.
Nifty Bank (48,564.55)
The rise to 49,000 happened in line with our expectation. Nifty Bank index made a high of 49,057.40 and has come down from there. It has closed the week at 48,564.55, up 0.15 per cent.
Short-term view: The Nifty Bank index can fall initially before reversing higher again this week. It can test 48,000-47,900 – the next important support zone in the near term. Thereafter, a fresh leg of rise can take the Nifty Bank index up to 49,000 and 49,500 in the short term.
In case the index declines below 47,900, the downside can extend up to 47,400 and even 47,000. But we place less probability for this fall to happen.
Graph Source: MetaStock
Medium-term view: The big picture is bullish. 49,600 will be an important resistance. A break above it can take the Nifty Bank index up to 51,500-52,000 initially. That rise will clear the way for the index to target 53,000 as well on the upside. Thereafter, we can expect a corrective fall to 50,000 and even lower. So, as the index runs into the 52,000-53,000 region, we have to turn cautious for a reversal.
Strong support is around 46,000 and then around 44,500. Nifty Bank index has to decline below these supports to turn bearish.
Sensex (74,244.90)
Sensex broke the resistance at 74,700 last week, but did not get a strong follow-through rise. The index made a high of 75,124.28 and reversed lower from there giving back all the gains. Sensex has closed flat for the week at 74,244.90.
Short-term view: Sensex can fall to test the immediate support at 73,500 initially this week. A break below 73,500 can drag the index down to 72,500 and even 72,000. We expect the Sensex to sustain above 72,000 and reverse higher again. Such a reversal can take the Sensex back up towards 75,000 in the short term.
Graph Source: MetaStock
Medium-term view: There is no major change in the big picture. Sensex has potential to target 78,000 as long as it stays above 72,000. Thereafter, a corrective fall to 74,000-72,000 is a possibility.
To negate the above-mentioned rise to 78,000, Sensex has to decline below 72,000 from here itself. If that happens, a sharp fall to 70,000-69,000 can be seen.
Dow Jones (37,983.24)
The Dow Jones Industrial Average tumbled, breaking below the key support level of 38,500 last week. It fell to a low of 37,877.30 and closed the week at 37,983.24, down 2.37 per cent. The Dow Jones has declined over 4 per cent in the last two weeks.
Graph Source: MetaStock
Outlook: The outlook is bearish. The region around 38,500 will now act as a strong resistance. Any intermediate bounce will be capped at 38,500. The Dow Jones can fall to 37,200-37,000 from here. In case it breaks below 37,000, the downside can extend up to 36,500.
The region between 37,000 and 36,500 is a strong support zone. As such, we can expect the Dow Jones to rise back again from this support zone. Such a bounce might have the potential to take the index back up to 38,000-38,500 again.
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