It was a sea of red in the global equity markets last week. Increased speculation that the US Federal Reserve would quicken the rate hikes has taken the US Treasury yields sharply higher. That. in turn. has triggered a strong sell-off in the equity markets. Escalating tensions on a possible invasion of Ukraine by Russia have also started to weigh on the risky assets such as equities.
In India, the benchmark indices Sensex and Nifty fell sharply by 3.57 and 3.5 per cent respectively. In the US, the Dow Jones Industrial Average tumbled 4.6 per cent.
Among the sectoral indices in India, barring the BSE Power Index (up 2.65 per cent), all other indices ended in red. The BSE IT index was hit the most. It was down 6.55 per cent last week. It was followed by the BSE Health Care and the BSE Consumer Durables indices, which were down 5.2 and 4.2 per cent respectively.
FPIs pull out
The Foreign Portfolio Investors (FPIs) also sold Indian equities heavily. They had sold $1.43 billion in the equity segment last week. For the month of January, the FPIs have pulled out $1.18 billion from Indian equities. It is to be noted that December saw an outflow of $2.524 billion, the highest since March 2020. If the FPI sell-off continues, Sensex and Nifty can come under more pressure and see a steeper fall from here.
For the coming week, the US Federal Reserve meeting outcome on Wednesday will need a close watch, which can impact the market movement.
Nifty 50 (17,617.15)
The Nifty 50 moved up initially at the beginning of the week. However, the index lost momentum and fell back sharply after making a high of 18,350.95 on Tuesday. The index tumbled for the rest of the week and made a low of 17,485.85 on Friday before closing the week at 17,617.15, down 3.5 per cent.
The week ahead: The resistance at 18,375 mentioned last week has held very well and the index has seen a strong turnaround from there. There is a support at 17,500 which is holding for now. If Nifty manages to sustain above it, there are chances to see a corrective bounce to 18,000-18,100 in the coming days. But a further rise past 18,100 is unlikely. As such Nifty is more likely to trade below 18,000-18,100, going forward, and the broader view is bearish.
As long as the Nifty trades below 18,100, the chances are high for it to break below 17,500 and fall further towards 17,200-17,000 in the short term.
In case the Nifty breaks above 18,100, it can rise back to 18,300-18,350 levels again.
Medium-term outlook: Inability to rise past 18,375 keeps our medium-term bearish view intact. A fall below 17,500 from here will reaffirm the same and drag it to 17,200-17,000 as mentioned above. Further break below 17,000 will see the sell-off intensifying towards 16,500 and even 16,000 in the coming weeks. That will also strengthen our overall bearish view of seeing 15,000-14,500 levels on the downside in the coming months.
Trading strategy: Traders can make use of rallies to go short at 17,820 and accumulate shorts at 17,950. So, the average entry level will be at 17,885. Keep the stop-loss at 18,310. Trail the stop-loss down to 17,765 as soon as the index falls to 17,420. Move the stop-loss further down to 17,380 as soon as the index touches 17,220. Book profits at 17,100.
Sensex (59,037.18)
Sensex has failed to sustain above 61,000 and did not see the rise to 62,000-62,250 mentioned last week. Instead, the index had come off sharply from the high of 61,475.15 itself last week. Sensex made a low of 58,620.93 before closing the week at 59,037.18. The index was down 3.57 per cent.
The week ahead: There is support at 58,600. If Sensex manages to sustain above 58,600 there are chances to see a corrective rise to 60,000-60,500 this week. But a further rise past 60,500 is unlikely. In case Sensex breaks above 60,500, the upside can extend up to 61,000-61,500.
The overall picture is weak. So, the chances of seeing a break below 58,600 are high. Such a break can drag the Sensex down to 57,000-56,000 in the short term.
Medium-term outlook: Inability to sustain above 61,000 followed by a sharp fall last week leaves intact the broader bearish view. 61,000-62,000 will continue to remain as the strong resistance on the upside. Only a strong rise past 62,000 will alter the overall bearish outlook.
The level of 56,000 is an intermediate support. A break below it can drag the Sensex down to 53,000-52,000 – the next important support zone, in the coming months.
Nifty Bank (37,574.3)
The Nifty Bank index snapped three weeks’ rally and fell over 2 per cent last week. The index made a high of 38,855 and fell sharply from there to close the week at 37,574.3, down 2.1 per cent. The revised stop-loss of 38,625 that was placed on the short positions taken at an average level of 38,380 has been hit.
The price action over the last couple of weeks indicates the presence of strong sellers near the psychological 39,000 mark. This leaves the broader outlook bearish. Resistance will be in the broad 38,100-38,500 region. Rallies to this resistance zone are likely to get fresh selling interest again.
Immediate support is at 37,500. A break below it can drag it to 37,000 – the next crucial support level. The sell-off can intensify if the Nifty Bank index breaks further below 37,000. Such a break will see the index tumbling to 36,000 and 35,250, going forward.
Trading strategy: Traders can make use of rallies to go short at 37,950 and 38,120. Stop-loss can be placed at 39,150. Trail the stop-loss down to 37,920 as soon as the index falls to 37,150. Move the stop-loss further down to 36,820 as soon as the index touches 35,900. Book profits at 35,400.
Global cues
The Dow Jones Industrial Average (34,265.37) opened the week with a wide gap-down and was under pressure all through the week. The index tumbled to a low of 34,229.55 on Friday and closed at 34,265.37, down 4.58 per cent for the week.
A very crucial support is at 34,000. A break below it will be bearish to see 33,000 and even 32,000 on the downside. On the other hand, if the Dow manages to sustain above 34,000 and moves back above 35,000, the downside pressure will ease. In that case, the 34,000-37,000 range will remain intact and the Dow can revisit 36,000-37,000 levels. As such the price action in the initial part of the week will need a close watch.