Index outlook: Indices fail to join global recovery

Foreign money outflow and limited upside in global indices may continue the downtrend

Global equities got a breather last week after tumbling in the two consecutive weeks preceding it. While the major global indices witnessed a recovery rally last week, the Indian benchmark indices remained subdued. Both the Sensex and Nifty 50 traded in a narrow range all through the week and closed on a flat note. The RBI’s notification on recognising bad loans and the ₹11,300 crore fraud in Punjab National Bank (PNB) shook the market and kept the sentiment negative last week.

FPIs sell-off

The foreign portfolio investors will need a close watch in the coming days. After buying consistently for six consecutive weeks since the last week of December, FPIs have turned net sellers over the last two weeks, selling $1.2-billion in Indian equities in that period. If the sell-off intensifies, the Indian benchmark indices can come under more pressure and fall further in the coming weeks.

 

 

Nifty 50 (10,452.3)

The Nifty 50 was stuck in a narrow range between 10,434 and 10,618 last week and closed on a flat note. Within this range, the index was volatile, moving up one day and then falling back the next day.

Short-term trend

The immediate outlook is unclear. A key short-term support is at 10,370. Whether the index manages to sustain above this support or not will decide the next move. If Nifty 50 remains above 10,370, the possibility of it breaking above the resistance at 10,600 will be high. A break above 10,600 will ease the downside pressure and take the index higher to 10,725 or even 10,785.

On the other hand, the index will come under renewed pressure, if it fails to break above 10,600 and declines below 10,370 in the coming days. In such a scenario, fresh sell-off in the market can drag the index lower to 10,200 or even 10,100 in the coming weeks.

Medium-term trend

The recent reversal that happened from around 11,170 is technically important. This downward reversal has taken place from a crucial long-term trend resistance and has turned the medium-term trend negative. So the upside in the short-term could be capped at the 10,785-10,800 resistance zone. This increases the possibility of the index breaking below 10,370 eventually and falling towards 10,100 — the key medium-term support level. A bounce back move to 10,400 cannot be ruled out after testing 10,100. But an eventual break below 10,100 will see the index tumbling towards 9,800 over the medium-term.

Sensex (34,010.76)

The Sensex was stuck between 33,957 and 34,535 last week. The index has a key support at 33,550. A strong break below this support can drag the index lower to 32,880 in the short term. But if the Sensex sustains above 33,350 and breaks above the immediate resistance at 34,500, a relief rally to 35,100 or even 35,300 is possible in the short term.

Medium-term view

The medium-term outlook remains negative. The possibility is high of the index breaking below 33,550. Such a break can drag the Sensex lower to 32,800 or 32,500 in the coming weeks. A corrective rally towards 33,500 is possible from 32,500. A strong break below 32,500 will take the index lower to 31,200 over the medium term.

Nifty Bank (25,163.9)

The bank index fell for the third consecutive week. The PNB fraud case kept the banking space under pressure. The Bank Nifty was down 1.2 per cent last week. The index has slumped over 8 per cent over the last three weeks. The short-term outlook continues to remain bearish as there is room for further fall. Immediate support is at 24,980 which is likely to be tested in the near term. A break below it can take the index further lower to 24,630 or 24,600 in the short term.

The level of 26,400 is a crucial resistance for the Bank Nifty which has to be surpassed for the outlook to turn bullish. But such a strong move breaking above 26,400 looks unlikely at the moment.

Global cues

After plummeting for two consecutive week, the Dow Jones Industrial Average witnessed a strong relief rally last week. The index surged 4.7 per cent last week and closed at 25,219. However, a key resistance is near the current levels at 25,470, which is likely to cap the upside in the coming days.. Inability to breach this hurdle can drag the index lower to 24,200 or 23,800 in the coming weeks. A strong break and a decisive weekly close below 23,800 will increase the likelihood of the index tumbling towards 23,000 over the medium term.

Japan’s Nikkei 225 (21,720) also made a smart recovery last week, taking support from the 200-day moving average. The index was up 1.6 per cent last week. Though the possibility of this relief rally extending in the coming days cannot be ruled out, strong resistance in 22,100 and 22,300 region can halt the move. A pull-back move thereafter can drag the index lower to 21,000 levels once again. Limited upside and higher possibility of the downtrend resuming in the major global indices like the Dow Jones Industrial Average and Nikkei 225 is likely to keep the domestic indices under pressure.

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