Index Outlook: Sensex, Nifty 50: More room to fall

The Indian benchmark indices extended the fall in line with our expectation in the truncated week. The Sensex, Nifty 50 and the Nifty Bank indices opened the week on a weak note by tumbling on Tuesday. Markets were closed on Monday last week. Although there was some recovery seen on Wednesday, it could not sustain. The indices turned lower again on Thursday and closed in red for the second consecutive week. Sensex and Nifty 50 were down just over a per cent each. Nifty Bank index, on the other hand, was down 2.59 per cent.

Among the sectors, the BSE Healthcare and the BSE Power were the only indices to close in the green last week. They were up 1.02 per cent and 1.52 per cent respectively. The BSE Realty index, down 4.45 per cent, fell the most last week.

The US Federal Reserve meeting outcome on Wednesday and the Interim Budget on Thursday are important events to watch this week.

FPIs sell-off

The foreign portfolio investors (FPIs) continue to sell the Indian equities. They pulled out $1.4 billion from the equity segment. So far, the month of January has seen a net outflow of about $3.25 billion. Foreign money outflows can continue to keep the Indian benchmark indices under pressure and drag them further lower in the coming weeks.

Nifty 50 (21,352.60)

The resistance in the 21,650-21,750 region held very well last week in line with our expectation. Nifty touched a high of 21,750.25 initially and then tumbled from there to make a low of 21,137.20. It has managed to bounce from that low to close the week at 21,352.60, down 1.02 per cent.

Short-term view: The outlook is bearish. Strong resistance is in the 21,500-21,600 region. Nifty can test 21,000-20,900 this week. A bounce from there can take the index up to 21,300-21,400. But a break below 20,900 can drag the Nifty down to 20,700 or even 20,500 in the next few weeks.

The region between 20,700 and 20,500 is a strong short-term support which can hold on its first test. As such, Nifty is likely to bounce back from the 20,700-20,500 support zone and rise 21,100-21,200 in the short term. Thereafter, it will have to be seen if it is getting a strong follow-through rise or not.

Chart Source: MetaStock

Medium-term view: The region between 20,700 and 20,500 will be a very crucial support. The price action in this support zone will need a close watch.

If the current fall extends beyond 20,500, then the correction could steepen. In that case, a fall to 20,000 can be seen. It will also keep the Nifty vulnerable to see 19,500 on the downside.

From a long-term perspective, the fall to 20,000-19,500 will be a very good buying opportunity. So, we will have to look at the market from the buy side as the Nifty falls to 20,000-19,500 rather than becoming overly bearish.

Crucial supports

Nifty 50: 21,000 & 20,700

Sensex: 70,000 & 69,450

Nifty Bank: 44,000 & 43,400

Nifty Bank (44,866.15)

Nifty Bank index broke above the resistance at 46,300 initially last week, but did not sustain. It fell back sharply from the high of 46,580.30 to a low of 44,229. Nifty Bank index has closed the week at 44,866.15, down 2.59 per cent.

Short-term view: The view is bearish. Resistance can be at 45,350. Intermediate support is around 44,400. A break below it can drag the Nifty Bank index down to 44,000-43,800 this week. Thereafter, a bounce to 45,500-46,000 is a possibility.

In case the Nifty Bank index declines below 43,800, the downside can extend up to 43,600 or 43,400.

Chart Source: MetaStock

Medium-term view: The region between 43,600 and 43,400 mentioned above is a very strong support zone. A break below 43,400 could be very difficult. So, we can expect the current fall to halt anywhere between 43,600 and 43,400. A fresh rise from there can take Nifty Bank index up to 46,000-46,300 initially. An eventual break above 46,300 will then open the doors for the Nifty Bank index to target 49,500-50,000 in the coming months.

As such, from a long-term perspective, Nifty Bank will become a very good buy below 44,000 as it moves down to 43,600-43,400.

Sensex (70,700.67)

As expected, Sensex failed to breach 72,000 and has tumbled to test 70,000 last week. Indeed, the fall to 70,000 has happened a little faster than expected. Sensex touched a low of 70,001.60 and has bounced from there to close the week at 70,700.67, down 1.01 per cent.

Short-term view: Outlook is negative. Immediate resistance can be at 71,000. Above that, 71,500 will be the next strong resistance that can cap the upside. Sensex can break below 70,000 and fall to 69,450 initially this week. The price action, thereafter, will need a close watch. A bounce from there can take the Sensex up above 70,000 again towards 70,500-70,700. But a break below 69,450 will see the downside extending up to 68,850. Thereafter a bounce is possible.

Chart Source: MetaStock

Medium-term view: From a medium-term perspective, 69,000-68,850 is a crucial support for the Sensex. The price action in this support zone will need a close watch. A bounce from there and a subsequent rise past 70,000 could bring back the bullishness into the market.

But a break below 68,850 if seen could increase the selling pressure. Such a break can drag the Sensex down to 67,300 or even 66,500 and lower in the coming months. So, we will have to wait and watch.

Dow Jones (38,109.43)

The Dow Jones Industrial Average remained stable and oscillated around 38,000 almost all through the week. The index rose on Friday to close at 38,109.43, up 0.65 per cent.

Chart Source: MetaStock

Outlook: The immediate outlook is positive. Dow Jones can rise this week to 38,400 – an important resistance to watch. A strong and sustained break above 38,400 will be bullish to see 39,000-39,300 on the upside.

On the other hand, if the index turns down from around 38,400, it can fall to 38,000 and lower. Key supports are at 37,800 and 37,650. The Dow Jones will come under pressure if it declines below 37,650. Such a break can drag it down to 37,200-37,100 in the short-term.

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