F&O Talk | Nifty indicates bearish momentum, Bank Nifty still a ‘wait and watch’: Sudeep Shah of SBI Securities
As of December 27th, FIIs have sold equities worth only Rs 656 crores through exchanges. However, consistent inflow of their money in the primary market for equity investments has been noted.
Analyst Sudeep Shah, Deputy Vice President and Head of Technical & Derivatives Research, SBI Securities interacted with ET Markets regarding the outlook on Nifty and Bank Nifty along with key levels to watch out for. Following are the edited excerpts from his chat:
With the Nifty ending the week near the 23,800 level, what are the immediate support and resistance zones for the coming week?
Talking about crucial levels, the zone of 23,550-23,500 will act as immediate support for the index. Any sustainable move below the level of 23,500 will lead to a sharp correction upto the level of 23,200, followed by 22,900 in the short term. While, on the upside, the zone of 23,950-24,000 will act as a crucial hurdle for the index. Any sustainable move above the level of 24,000 will lead to a sharp pullback rally upto the level of 24,300, where 50 and 100-day EMA is placed.
What is your view on the index’s struggle with the 200-day moving average in determining its near-term trend?
In the December series, Nifty futures experienced a pullback rally during the first half of the month, reaching a high of 24930. However, the index subsequently resumed its downward trajectory, marking the third consecutive series of negative returns.Following a sharp 4.77% decline in the previous week, this week was relatively subdued, with the index trading within a narrow range. Notably, Nifty formed Doji candlestick patterns in all four trading sessions, reflecting indecisiveness among market participants. The index moved within a range of just 291 points, the narrowest since 18th June 2024.
Currently, Nifty is trading below its 20, 50, and 100-day EMAs, all of which are trending downward. Over the past four sessions, the index has hovered near its 200-day EMA (23,694). Meanwhile, the daily RSI remains in bearish territory, positioned below its signal line.
This indicates overall bearish momentum in the index.
Is Bank Nifty a better bet being placed above the 200 DEMA? What trend do you foresee?
The Bank Nifty has been outperforming the broader indices, but the index remains in a consolidation phase, fluctuating between 51,790 and 50,609 over the past six sessions. Currently, it’s trading near the 100 and 200-day EMA, with both moving averages flattening due to prolonged sideways movement.
Momentum indicators, including the RSI, reflect a lack of directional bias, suggesting that the index is in a neutral zone. A decisive break above 51790 or below 50609 could trigger a significant move, dictating the next trend.
Until then, Bank Nifty appears to be in a wait-and-watch mode, with a breakout likely to set the tone for the next rally or correction.
FIIs have shown consistent selling pressure recently, even amid thin volumes, selling was witnessed. How might this trend influence market sentiment, and what sectors are likely to bear the brunt of this selling?
The persistent selling by the FIIs, even during periods of low trading volume, signals a cautious stance and could dampen overall market sentiment. This trend often triggers broader risk aversion, prompting investors to pare down exposure, especially in sectors sensitive to global flows and economic cycles.
Sectors Likely to Face Pressure:
Technically, sectors such as Oil & Gas, Automobiles, Media, PSE, CPSE, and Metals are poised to experience short-term selling pressure. These sectors, often reliant on global demand, commodity prices, and policy shifts, are more vulnerable to FII movements.
As FIIs continue to unwind positions, expect heightened volatility in these sectors, with stock-specific action driven by technical levels and broader market cues. A shift in sentiment could emerge if FIIs return as buyers or if DII absorbs the selling pressure.
What does the December-to-January series rollover data suggest about traders’ expectations? Are we seeing higher short positions being carried forward?
The December-to-January rollover data reflects cautious trader sentiment as Nifty posted its third consecutive negative series. Rollover stood at 77.66%, down from 79.34%, but above the three-month average of 76.62%. Absolute shares rolled dipped to 120 lakhs from 128 lakhs, indicating reduced conviction.
A rise in rollover cost to 0.72% (vs. 0.65% avg) suggests higher short positions being carried forward, signaling traders’ bearish bias. With Nifty resuming its downtrend after a brief rally, traders appear braced for continued weakness in the near term.
Are there any sectors or stocks that are well-suited for taking positions based on the rollover data?
Based on the rollover data, Nifty Pharma and Nifty Healthcare are likely to outperform in the short term. Among the constituents of Nifty Pharma, Ipca Laboratories is likely to witness a sharp upside. The stock has seen 92.09% rollover. Further, on the technical front, the stock has given a horizontal trendline breakout along with robust volume. Hence, it is likely to test the level of Rs 1730, followed by Rs 1800 in the short term.
What does Seasonality Indicate for Nifty in the January Series?
Tracking seasonality, over the past 17 years, the January month has often exhibited a negative trend for Nifty. On 11 occasions, the index has concluded on a negative note with an average loss of 4.79%, while on 6 occasions, it has ended on a positive note with an average gain of 5.67%. The average return for Nifty in the January series has been -1.10%. Over the past 17 years, January has consistently shown an average volatility of 9 percent for the Nifty index.
Are we likely to see a recovery or further consolidation in the early weeks of 2025?
Technically, the index is expected to consolidate with a bearish bias during the initial weeks of CY 2025.
Do you see any global uncertainties still weigh heavily on the Indian markets?
Yes, global uncertainties continue to weigh on Indian markets, especially with the policy uncertainties once Donald Trump takes over as the President of the USA. The strengthening of the Dollar Index is also proving to be a big problem for all the Emerging Market Currencies, including INR, which has plummeted to a fresh low.
Do you recommend any stocks and sectors that are well poised for the upcoming year?
Technically, Nifty Pharma, Nifty Healthcare, and Nifty IT are likely to outperform in the upcoming calendar year.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
