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Below the Quote on Weekly Note by Mr. Ajit Mishra, SVP - Research, Religare Broking Ltd

Markets took a sharp downturn after three consecutive weeks of gains, losing ~ 4.5%, largely due to negative global cues. The sentiment was bearish from the start, driven by escalating tensions in the Middle East, which raised crude prices amid fears of supply disruptions. Additionally, persistent FII selling raised concerns about a potential fund shift to China, following their announcement of a series of stimulus measures, further dampening market optimism. As a result, the benchmark indices Nifty and Sensex settled around the week’s low, closing at 25,014.6 and 81,688.4, respectively. The decline was broad-based, with all major sectors closing in the red except for metals. Realty, auto, and energy were among the top losers. Interestingly, broader indices performed relatively better, losing between 2.5% and 3.2%, indicating more pressure in large-cap stocks.

Looking ahead, several important data releases and events could influence market direction. Investors will be closely monitoring developments in the geopolitical situation and its impact on crude prices. The trend in foreign flows, along with the positioning of domestic flows, will also be crucial. Notably, the US markets have shown resilience despite rising volatility,which could potentially trigger a rebound in Indian markets as well.

On the domestic front, the focus will be on outcome of the upcoming MPC meeting on October 9 and the recent surge in crude prices have dimmed hopes for a rate cut. However, any indication of a future rate cut in the commentary could lift market sentiment amid global volatility. Furthermore, the earnings season kicks off this week, with IT giant TCS set to announce its results on October 10, while IIP data is due on October 11.

Technically, Nifty's sharp decline erased the gains of the past two weeks and breached multiple short-term moving averages as well as the rising trendline on the daily chart. Additionally, the India VIX has surged over 18%, signaling increased fear among participants. Given these factors, further downside in the index is possible, with the next support at 24,750 and major support at 24,350 (100 DEMA). In case of a recovery, the 25,500-25,800 zone is likely to act as resistance. Sector-wise, IT, pharma, and metals are showing relative strength, while other sectors are vulnerable to further profit-taking. Traders are advised to limit long positions and consider shorting weaker sectors until Nifty decisively reclaims the 25,600 level.

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