The BSE Sensex dropped 880 points, or 1.1%, to close at 79,454, while the Nifty50 fell 266 points, or 1.1%, to end just above the 24,000 mark at 24,008.
Analyst Sudeep Shah, Deputy Vice President and Head of Technical & Derivatives Research, SBI Securities interacted with ET Markets regarding the outlook on Nifty and Bank Nifty. Here are the edited excerpts from his chat:
What is your say on the volatility and general long-term view on the market amid the India-Pakistan war escalations?
Despite ongoing geopolitical tensions between India and Pakistan, the benchmark Nifty index managed to limit its losses, ending the week lower by just over 1%. The Bank Nifty has strongly underperformed frontline indices as it has corrected by 2.76%. Interestingly, the broader indices, Nifty Midcap and Nifty Small Cap 100 indices, witnessed a smart rebound on Friday after the gap-down opening, demonstrating resilience and maturity during these uncertain times.
For the third consecutive week, the volatility index, India VIX, ended on a positive note. It has surged by nearly 19% and has given the highest weekly closing since June 2024. This sharp spike clearly signals that market nervousness is on the rise, with overall volatility surging significantly amid escalating geopolitical tensions between India and Pakistan. The sustained uptrend in VIX indicates the need for a cautious approach as well as appropriate risk management policies.
From the price action perspective, it is important to note that the index continues to trade comfortably above its medium and long-term moving averages, indicating that the broader trend remains intact for now. However, the momentum indicators and oscillators portray a sideways picture. Hence, we believe the index is likely to witness a consolidation for the next couple of trading sessions.
What do you expect in Nifty? Do you see it going down, or may be remain range-bound for a while?
We believe the index is likely to witness a consolidation for the next couple of trading sessions. Talking about crucial levels, the zone of 23,850-23,800 will act as a crucial support for the index. If the index slips below the level of 23,800, then the 100-day EMA zone of 23,560-23,500 will act as the next crucial support for the index. While on the upside, the zone of 24,250-24,300 will act as a crucial hurdle for the index.
What is your view on Bank Nifty?
After two weeks of consolidation, the banking benchmark index, Bank Nifty, has witnessed a breakdown and ended the week with a loss of over 2.50%. It has strongly underperformed frontline indices. The ratio chart of the index as compared to Nifty is marking the sequence of lower tops and lower bottoms.
Also, the index has slipped below its 20-day EMA level for the first time since April 11. The daily RSI is in the sideways zone, and it is in falling mode. This chart structure indicates consolidation along with a bearish bias in the short term.
Talking about crucial levels, the zone of 53,400-53,300 will act as immediate support for the index as the 38.2% Fibonacci retracement level of its prior upward rally (49,157-56,099) is placed in that region. If the index slips below the level of 53,300, then the next crucial support is placed at the 52,600 level. While on the upside, the zone of 54,100-54,200 will act as an immediate hurdle for the index.
Which index is a better bet for the traders right now, and what strategy can they play?
The Nifty India Defence took support near the 20-day EMA level and thereafter witnessed a rebound. Considering the current chart structure, it is likely to outperform in the short term.
Despite high volatility in the frontline indices, the Nifty IT is consolidating in a narrow range. The ratio chart of the index as compared to Nifty has recently given a consolidation breakout, which shows outperformance. Hence, we believe it is likely to continue its outperformance in the short term.
FIIs are returning to India. Are they seeing the dips amid this war-like scenario as a buying opportunity?
In the past few trading sessions, FIIs turned net buyers in the cash market, signalling renewed interest. However, it’s worth noting that following Thursday night’s escalation between India and Pakistan, FIIs turned sellers on Friday, offloading equities worth Rs 3798.71 crore.
In the derivatives segment, their positioning also saw a shift. The FII long-short ratio in index futures had climbed to 52% on Thursday, the highest level since the first week of October 2024, hinting at growing bullish bets. But by Friday, this ratio slipped back to 47.71%, reflecting a more cautious stance.
While FIIs have shown buying interest, the sudden geopolitical flare-up has made them tread carefully, indicating that sustained flows will depend on how the situation unfolds.
What do you see happening given this war? What level of escalation do you anticipate, and how likely is it to affect Indian markets?
We have analysed data from the last three major geopolitical incidents between India and Pakistan — the Kargil War, the LOC strike after the Uri attack, and the Balakot strike following the Pulwama attack.
- During the Kargil War, Nifty initially experienced high volatility but then staged a sharp rally, surging nearly 36% during the conflict.
- Post the Balakot strike, the index delivered a strong return of over 10% in the 90 days that followed.
- The Uri strike was an exception, as Nifty declined by more than 8% in the subsequent 90 days. It’s worth noting that this period also coincided with the announcement of demonetization, which weighed heavily on market sentiment.
The historical pattern suggests that while initial volatility is common during such geopolitical events, the index has, in most cases, regained upside momentum once the dust settles. Also, we would like to highlight that the current major trend of the index is still sideways to bullish. However, we recommend adopting a cautious stance for the next couple of days.
In this scenario, defence plays an important role. What do you have to say about the medium and short-term view on this sector?
Technically, the major trend of the Nifty India Defence is bullish as it is marking the sequence of higher tops and higher bottoms. Also, it is trading above its short and long-term moving averages. Recently, the index has marked a high of 7,352 and thereafter witnessed a minor throwback, which was halted near the 20-day EMA level.
Interestingly, the daily RSI took support in the zone of 58-57 level and thereafter witnessed a smart rebound. Currently, it is quoting at 62.19 level, and it is on a rising trajectory, which is a bullish sign. Hence, we believe Nifty India Defence is likely to outperform in the short term.
Any stocks you’d like to recommend?
Technically, Larson & Toubro, Titan Company, Bharat Electronics, Bharat Dynamics, Solar Industries, and Redington are looking good.
In the Q4 earnings season, has any stock impressed you, particularly after reporting its results?
Larsen & Toubro and Privi Speciality Chemicals Ltd have particularly impressed me this Q4 earnings season.
Any other sectors where one should keep an eye on in these times?
Technically, Nifty India Defence and Nifty IT are looking good.
On the flip side, Nifty PSU Bank, Realty, Pharma, and Healthcare are likely to underperform in the short term.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)