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

Markets experienced pressure and lost nearly two percent amid mixed signals. The tone was negative from the start as participants were in profit-taking mode after two weeks of gains. Caution ahead of the key event, the outcome of the general election, and weak global cues further dampened sentiment as the week progressed. Consequently, the Nifty slipped below the crucial support zone of its short-term moving average (20 DEMA) and finally settled at 22,530.70. All key sectors, except banking, faced challenges, with IT, Energy, and FMCG being the top losers. The broader indices also declined, losing between 1% and 1.5%.

With the election results in focus, we anticipate continued high volatility. Following the event, attention will shift to the outcome of the scheduled MPC meeting. Additionally, the performance of global markets, which are currently providing mixed signals, will also be closely monitored by traders.

The decline in the index has disrupted the momentum ahead of the election results, as the Nifty retraced nearly half of its recent rally from 21,821.05 to 23,110.80 and fell below the 20 DEMA. We are now trading at the lower band of a rising channel around the 22,400 level, and a decisive break here could lead to a further decline, possibly retesting the 21,800-22,000 support zone. In case of a recovery, the 22,900-23,400 zone would be challenging to surpass. Sector-wise, the outlook is mixed as fresh declines in IT and FMCG sectors have diminished hopes for support from the banking sector. While broader indices are still near their record highs, market breadth has deteriorated, indicating selective participation. Given this scenario, we recommend keeping a close watch on leveraged positions and waiting for more clarity.

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