Index Outlook: Sensex, Nifty 50 & Nifty Bank: Fresh fall on the cards

The Indian benchmark indices opened the week with a wide gap-down following the sell-off in global equities. Although they managed to bounce back immediately, there was lack of a strong follow-through buying. The price action last week indicates the absence of strong buyers in the market this time. There is room for further rise from here, but the market has to gain momentum to sustain the rise. On the charts, the picture is weak. We can expect the Indian benchmark indices to reverse lower again and fall more, going forward.

FPIs sell

Foreign portfolio investors (FPIs) were net sellers of Indian equities last week. The equity segment saw a net outflow of about $1.48 billion. If the FPI sell-off intensifies, then the Sensex and Nifty can come under more pressure and fall further from here. FPI action in the coming weeks could be very crucial for the Indian markets.

Nifty 50 (24,367.50)

Nifty fell well beyond the expected level of 24,100 last week. It made a low of 23,893.70 and had risen back well from there. It has closed the week at 24,367.50, down 1.42 per cent.

Short-term view: The bounce from the low of 23,893.70 is significant, as it happened from just above a key support level of 23,800. However, the price action indicates that the index is struggling to get a strong follow-through rise above 24,400. So, that leaves a doubt on the bounce that had happened last week.

Immediate support is at 24,300. If the Nifty manages to sustain above it, a rise to 24,500-24,530 can be seen this week. A break above 24,530 will see the upmove extending to 24,650-24,700 and even 24,800 in the short term.

But a failure to breach 24,530 and a reversal from there will be negative. That fall can drag the Nifty below 24,300 towards 24,000-23,900 again.

We expect the Nifty to turn down and fall back to 24,000-23,900 again. But whether this fall will happen from around 24,530 itself or after an extended rise to 24,700-24,800 remains to be seen.

Graph Source: MetaStock

Medium-term view: Key resistances are at 24,800 and 25,100. Support is around 23,900. As long as the Nifty stays below 25,100, the chances for it to break 23,900 in the coming weeks is high. Such a break can drag the Nifty down to 23,700 first, and 23,200-23,000-22,800 eventually. If the sell-off worsens, then a break below 22,800 can drag the Nifty down to 22,000.

However, from a long-term perspective, the fall to 23,000-22,000 will be a good buying opportunity. So, as the Nifty falls to 23,000 and lower, we have to start looking at the market from the buy side.

To negate the fall, Nifty has to sustain above 23,900 and breach 25,100 decisively. If that happens, then 27,000 and higher levels can be seen.

Nifty Bank (50,484.50)

The break below 50,000 and the fall to 49,500 last week happened almost in line with our expectation. The Nifty Bank index made a low of 49,659.05, and had risen again, recovering some of the loss. The index has closed the week at 50,484.50, down 1.69 per cent.

Short-term view: The bounce last week has given some relief. If that sustains, a further rise to 51,000 is possible this week. If the index manages to breach 51,000, an extended recovery rise to 51,400 and 51,800 is possible. The region between 51,800 and 51,900 is a strong resistance zone, which can cap the upside. A rise beyond 51,900 is unlikely.

We can expect the Nifty Bank index to turn down from around 51,800-51,900, and fall back to 50,000-49,500 again. A break below 49,500 can take it down to 49,000.

This reversal mentioned above can even happen from around 51,000 or 51,400 itself.

Graph Source: MetaStock

Medium-term view: The long-term trend is up. But there are chances to see a further corrective fall within it in the coming months. The level of 52,600 is an important resistance. As long as the Nifty Bank index stays below this resistance, the chances to see a fall to 48,500-48,300 initially are high. A break below 48,300 can drag it down to 47,800 and even 47,000. A fall beyond 47,000 is unlikely,

From a long-term perspective, such a fall to 48,000-47,000 will be a good buying opportunity. A fresh leg of rally from the 48,000-47,000 zone will have the potential to take the Nifty Bank index up to 54,000 and 57,000 over the long term.

Sensex (79,705.91)

Sensex fell well beyond the expected level of 79,500 last week. It made a low of 78,295.86 and has since risen back, recovering some of the loss. The index has closed at 79,705.91, down 1.58 per cent for the week.

Short-term view: Immediate resistance is at 79,920. Above that, 80,250 and 80,500 are the next important resistances. Sensex can test these resistances this week, if it manages to sustain above 79,500. But after this rise, the index can turn down again and see a fresh fall to 78,500-78,000 in the near term.

A strong and sustained rise above 80,500 is needed to strengthen the bullish case for a rise to 82,000-83,000 levels again.

Graph Source: MetaStock

Medium-term view: The region around 82,000 will remain a strong resistance for the Sensex. As long as the Sensex trades below this resistance, there is a good chance to see a corrective fall to 77,000-76,000. A break below 76,000 can drag it down to 74,500-74,000. Such a fall to 76,000-74,000 will be a good long-term buying opportunity.

Resistances to watch

Nifty: 24,530, 24,700, 24,800

Sensex: 79,920, 80,250, 80,500

Nifty Bank: 51,000, 51,400, 51,800

Dow Jones (39,497.54)

The Dow Jones Industrial Average fell to a low of 39,499.27 initially, before rising back to recover most of the loss. We had expected a fall to 38,200. The index has closed the week at 39,497.54, down 0.6 per cent.

Graph Source: MetaStock

Outlook: The immediate outlook is slightly unclear. Resistance is around 39,720. If the Dow manages to breach this hurdle, a rise to 39,900 and 40,100 would be seen this week.

Alternatively, if the Dow fails to rise past 39,720 and declines below 39,000, it can come under pressure again. In that case, the chances of the fall to 38,200 will continue to remain alive. We will have to wait and watch.