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Nifty :22399

Technical Outlook

Day that was…

Indian equity benchmarks ended on a negative note after RBI policy and weekly expiry, settling at 22399, down 0.61%. Market breadth was in favor of declines, with A/D ratio of 1:2, as the broader market underperformed. Sectorally, FMCG and Consumer Durable where the outperformer, whereas, PSU Bank, IT and Pharma were the laggards.

Technical Outlook:

* The Nifty opened with a gap-down (22535-22460) and traded in a lackluster manner after RBI policy with below average daily turnover at 80800 cr. compared to monthly average of 94500 cr. As a result, the daily price action formed an Inside Bar, indicating range bound action.

* In today’s session index is likely to witness gap up opening tracking rebound in global peers post announcement of 90 days pause on Tariff. Key point to highlight is that, despite high volatility amid uncertainty over tariff, the index managed to protect March low of 21900 on a closing basis. Consequently, on the line chart now it appears to be forming double bottom formation. Also, the decline in US Dollar Index (approaching near 2 years low of 100) coupled with weakness in brent crude and cool off in US inflation would act as tailwind for the market. Going ahead, we expect index to undergo base formation in the broader range of 23500-21900 and set the stage for next leg of up move. In the process, stock specific action would prevail onset of Q4 earning season which would help in providing direction of the market. Hence, focus should be on accumulating quality stocks to build a medium-term portfolio.

* Historically, since 2002, within a structural bull market, price wise maximum intermediate corrections have typically been to the tune of 18% (barring 2004 & 2006). Meanwhile, time wise such corrections last for average 8-9 months. In current scenario, we believe index is approaching price and time wise correction as index has already corrected 17% over past seven months. Historical evidences suggest that post such correction, index tend to undergo a base formation while absorbing host of negative news. During this base formation it’s important to watch out for structural improvement underpinned by improvement in market breadth coupled with bottoming out process of momentum as well as sentiment indicators from its bearish extremes that pave the way for next leg of up move.

* However, one should note that such recoveries are observed in ‘U’ shape rather than ‘V’ shape recovery. Historically, buying in such scenario has been rewarding, delivering an average return of 23% over the subsequent twelve months. While navigating through the current global volatility, we are witnessing some silver linings that could act as tailwinds for the domestic market, details listed below:

* a. Bank Nifty: The banking space has shown relative outperformance by sustaining above its 52 weeks low. Despite global sell off, Banking index managed to defend March lows and now forming a higher base, highlighting relative outperformance.

* b. Global Macros: Weakness in US Dollar index, and Brent crude oil, slow down in US Inflation coupled with cool off in S&P VIX bodes well for domestic markets.

* We expect volatility to prevail amid ongoing global uncertainty. Consequently, we revise our support base at 21900 and only a decisive close below it would result into extended correction.

Nifty Bank : 50240

Technical Outlook

Day that was :

The Bank Nifty index witnessed lackluster session on the day of RBI Monetary Policy outcome, where it settled the session on a negative note at 50240 , down by 270 points . Meanwhile, the Nifty PSU Bank index underperformed the benchmark and settled at 6092 , down by 2 .52 % .

Technical Outlook :

* The Bank Nifty opened on a flat note and traded with negative bias during the first half of the session . However, the index witnessed supportive efforts from the vicinity of previous session low which helped it recover more than 50 % of the intraday losses . The price action resulted in a small bear candle with long lower shadow, indicating supportive efforts at lower level .

* Key point to highlight is that, the Bank Nifty resumed its up - move after witnessing supportive efforts from 61 . 8 % retracement of the previous rally (47702 -52064), indicating structural strength . Going ahead, we believe that the index is forming higher base and will eventually approach the recent swing high of 52000 in coming sessions, sustenance above which will lead to further upside, indicating resumption of uptrend . Meanwhile, the recent swing low of 49200 will provide immediate support on the downside . However , bouts of volatility will prevail amid tariff development coupled with upcoming result season .

* Structurally, the Bank Nifty is showing resilience, as it retraced only 61 . 8 % of the previous up -move as compared to the benchmark index which on the other hand retested the previous swing low . Additionally, the Bank Nifty is witnessing base formation near the lower band of 2 years rising channel, indicating relative outperformance .

* In tandem with the benchmark index, the Nifty PVT Bank index witnessed a rangebound action where it traded within a tight range of ~250 points . The price action resulted in hammer like candle after observing intraday recovery from the previous swing low . Going ahead, the index needs to decisively close above the recent gap -down area (25345 -25084 ) which would result in further up -move towards 25800 , indicating end of ongoing corrective bias . Meanwhile , the recent swing low of 24400 will act as an immediate support on the downside .

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