Nifty technical outlook: The Indian stock market staged a strong rebound last week, with the Nifty 50 rising 2.8 per cent to close at 23,146, despite continued global volatility. According to Dharmesh Shah, Head Technical, Vice President, ICICI Securities, the benchmark index has shown signs of a trend reversal after an eight-week corrective phase, supported by renewed momentum in IT, private banking and telecom stocks. Shah believes the recovery could extend towards the 23,500 mark in the coming weeks, while 22,500 is the revised support level. However, elevated volatility, global developments and limited participation from midcap and small-cap stocks remain key factors to watch.
Shah said in the face of global volatility, the Nifty made a robust rebound, propelled by its heavyweights, closing the week at 23,146 with a gain of 2.8 per cent. While this strong performance was evident, the midcap and small-cap indices lagged behind, rising only 0.6 per cent and -0.2 per cent, respectively. The IT sector, which had been underperforming, staged an impressive comeback, gaining 12 per cent following the earnings of its heavyweights and profit-taking in AI-driven and private banking sectors. Conversely, Pharma and FMCG extended breather.
He said, “Despite a subdued opening, Nifty managed to hold the long-term 200-week EMA for the third consecutive week and experienced a strong rebound settling above the key resistance of 23100 mark, supported by renewed momentum in IT, private banks, and telecom sectors, collectively comprising more than 50 per cent of the Nifty’s weightage. This resulted in the formation of a morning star candlestick pattern at the 200-week EMA, indicating the end of an eight-week corrective phase.”
“With a >950-point-strong recovery, index maintained the rhythm of reversing course after an eight-week losing streak and logged a breakout from a two months falling trendline wherein last two weeks’ decline recouped in just a single week. This structural improvement signals an extension of rally toward 23,500 in upcoming weeks. Meanwhile, support base is revised upward at 22500 being 61.8 per cent retracement of current up move (22180-23150),” he added.
On the sectoral front, Shah added that the ratio chart of the Nifty Private Bank Index compared to the overall Nifty broke out of a five-year downward channel, while the Nifty IT Index ratio chart logged a breakout from a six-month inverted head-and-shoulders pattern. These improvements suggest relative outperformance in these sectors moving forward.
The Indian market had lagged its global counterparts due to AI-driven momentum. However, the recent sell-off in global AI-driven stocks, fuelled by concerns about Fed interest rate hikes and financing of AI investments, could serve as a supportive tailwind for the growth-orientated Indian market, potentially attracting FII’s in the near future, he further said.
Looking ahead, Shah highlighted that the volatility is expected to remain elevated ahead of US Midterm elections. In the process, a key level of support for the Nifty is placed at its recent panic low of 22,200, coinciding with the 200-week EMA at 22,380. Therefore, maintaining a stock-centric approach and focusing on companies with strong earnings remains crucial. Only a breach below 22200 would lead to extended correction.
“Unlike the benchmark, the broader market showed limited participation and failed to close above its previous week’s high. For the sustainability of the current rally, broader market participation will be essential. Midcap and small cap index closing decisively above the previous week’s high would be the first indication of broadening of rally,” he added.
Monitorable key indicators
1. Heavyweight earnings releases
3. Developments in geopolitical affairs
5. US 10-Year Treasury yields