Nifty Outlook: The Nifty 50 needs to decisively close above the 23,500 mark for a meaningful pullback, according to Dharmesh Shah, Head Technical and Vice President at ICICI Securities. Shah believes the Indian stock market is nearing its cyclical lows after a sharp correction, although geopolitical tensions and rising crude oil prices could keep volatility elevated.
The benchmark Nifty declined 2.4 per cent last week to settle at 22,600, giving up its previous week’s gains. The broader market witnessed sharper losses, with the Nifty Midcap and Smallcap indices falling 6 per cent and 7 per cent, respectively.
All major sectoral indices, except IT, ended in the red, with metals, defence, realty and FMCG among the sectors facing selling pressure.
Nifty Outlook: Why is 23,500 important?
According to Shah, market volatility is expected to remain elevated amid escalating geopolitical tensions and rising crude oil prices ahead of the US midterm elections.
He noted that the Nifty has witnessed multiple failed pullback attempts since August. For a meaningful recovery, the index needs to decisively close above 23,500.
This level represents the 50 per cent retracement of the recent decline from 24,774 to 22,180 and coincides with a downward-sloping trendline.
Otherwise, the corrective bias is likely to continue, with strong support placed in the 22,200–21,700 zone. This zone represents the 61.8 per cent retracement of the October 2023 to September 2024 rally from 18,838 to 26,277 and coincides with the April 2026 low.
Is the Indian stock market nearing its bottom?
Shah believes the market is approaching its cyclical lows, considering historical correction patterns, geopolitical risks, weakening momentum and market breadth indicators.
According to him, holding these lows could pave the way for a gradual recovery.
Despite ongoing global volatility, the Nifty has managed to remain above its long-term 200-week exponential moving average (EMA).
Historical data spanning 25 years shows that the median correction following a breach of this key average has been limited to 3 per cent, excluding 2001, 2008 and 2020.
Shah noted that buying during such periods of panic has historically resulted in returns of 10 per cent over the subsequent three to six months.
Nifty correction approaching historical average?
According to Shah, there have been eight instances over the past 25 years when bull-market corrections were arrested, with an average correction of 17 per cent.
With the Nifty having already corrected approximately 16 per cent from its January 2026 high of 26,373, he believes the market is approaching maturity in terms of the magnitude of its correction.
Can global AI stock sell-off support Indian equities?
Shah noted that the Indian market had lagged its global counterparts due to AI-driven momentum.
However, the recent global sell-off in AI-driven stocks, triggered by concerns over Federal Reserve rate hikes and the financing of AI investments, could provide a supportive tailwind for growth-oriented Indian equities.
He believes this could potentially attract foreign institutional investors (FIIs) to Indian markets in the near future.
Market breadth: What do historical patterns indicate?
Shah highlighted that extreme weakness in market breadth has historically been followed by a recovery.
According to his analysis, when more than 80 per cent of the Nifty 500 universe trades below its 50-day and 200-day simple moving averages (SMA), alongside an advance-decline reading showing only 30 stocks in positive territory, it signals capitulation extremes.
Historically, following such conditions, the Nifty has delivered a median rally of approximately 23 per cent over the subsequent six to 12 months.
Currently, more than 90 per cent of stocks are trading below their 50-day EMA, while 73 per cent are below their 200-day EMA, with 50 stocks trading in positive territory.
Nifty Midcap outlook: Is more downside possible?
According to Shah, the Nifty Midcap index has already corrected around 14 per cent and is approaching its key long-term rising trendline.
This level also coincides with the price parity of the 16 per cent correction witnessed during the early part of 2026.
However, Shah said another couple of percentage points of correction cannot be ruled out.
What could trigger a market recovery?
Shah believes historically oversold conditions have offered opportunities to construct medium- to long-term investment portfolios.
According to him, any signs of de-escalation in geopolitical conflicts and cooling crude oil prices would likely result in a revival of market momentum.
Key market indicators to watch
Shah identified three important indicators to monitor going forward:
- US Federal Reserve meeting
- Crude oil prices
- US 10-year bond yields
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money-related decisions.)