Gift Nifty down 50 points; key levels to watch out for Nifty and Nifty Bank

Following Tuesday's carnage on Dalal Street, Nifty futures on the Nifty International Exchange traded 51 points, or 0.23 per cent, lower at 22,049.50, hinting at a negative start for the domestic market on Wednesday. The market participants will be keenly looking at the key levels of the benchmark indices and the political developments from the country during the day.
 

Majority of the market participants see the latest correction after the Lok Sabha election results as a knee-jerk reaction for the investors and dust is likely to settle down once the new government is formed. However, they believe that the rich valuations for the Indian stocks may not sustain and the euphoria in the outperforming sectors may be over.
 

The election result is likely to lead to a more balanced market; risk-reward in large caps and underperforming sectors like banking and consumer appears more favourable, said Rahul Singh, CIO of Equities at Tata Asset Management. The key data points to watch going forward would be the tilt of government policy and the Union Budget, he said
 

"On the other hand, there is likely to be greater scrutiny and valuation discipline in the performing sectors like capital goods, power, defence and manufacturing. The macro parameters are likely to remain largely stable and hence provide downside support to valuations," Singh said.
 

Markets plunged sharply but some recovery in the latter half of the session pared losses marginally. All key sectors, except FMCG, experienced significant losses, with PSUs, energy, and metals being the hardest hit. The broader indices also suffered, each losing up to 8 per cent, said Ajit Mishra, SVP of Research at Religare Broking.
 

"Following this sharp decline, we expect continued choppiness, so participants should limit their trades and wait for stability. Investors, however, can use this opportunity to accumulate quality stocks available at good bargains" he said.
 

Pradeep Gupta, Co-founder & Vice-chairman, Anand Rathi Group said that  the immediate market reaction to the election results has been volatile, the overall long-term outlook remains positive, particularly if policy continuity is maintained. Investors are encouraged to stay informed, focus on fundamentals, and be prepared for short-term fluctuations.
 

Gupta advised investors to focus on long-term strategies, such as maintaining a diversified portfolio and avoiding panic selling. Strong fundamentals and resilience against political changes are crucial for navigating market volatility. Large-cap stocks are preferred for their stability and resilience against economic fluctuations, he said.
 

Nifty Outlook
On a technical basis, analysts suggest investors to respect the key support and resistance levels with caution to avoid any aggressive positions to safeguard their capital. They suggest that investors should not expect any clear directional moves until the political uncertainty is cleared.
 

The Nifty 50 index has closed below the upward trending channel today. Though 21,800 was defended today, a move below today’s low 21,281, which coincides with 200DEMA, should be watched out for adding short positions, said Shrey Jain Founder and CEO at SAS Online, at discount broker
 

"Traders should avoid aggressive directional trades in either direction. Fresh long can be initiated above 22,200 for higher targets up to 22,800. On the lower side Nifty may touch 21,000 and 20,600," he said. Commenting on Banks, Jain suggested avoiding buying a stock just because it has fallen in a big way and stick with a large and quality mid cap.
 

A huge, long negative candle was formed on the daily chart with lower shadow. Nifty recovered from near the lower support of 200 Day EMA around 21,250 levels, said Nagaraj Shetti, Senior Technical Research Analyst, HDFC Securities. This candle pattern indicates an attempt of downside breakout of larger high low range of 23,000-21,700 levels, he said.
 

"The short-term trend of Nifty is highly volatile with negative bias. Immediate support is placed for Nifty around 21,250 levels. Once election result volatility settles down, the market could find direction for the near term. There is a possibility of an upside bounce in the Nifty from near 21,250-21,000 levels," Shetti adds.
 

Technically, the index confirmed a hanging man candle and remained below it, indicating weakness. The index will find immediate support around 21,800 levels, followed by 21,250, where the 200-DEMA is located, said  Hrishikesh Yedve, AVP Technical and Derivatives Research at Asit C Mehta Investment Interrmediates. "The levels 22,800 and 23,340 serve as significant obstacles."
 

Nifty shall now retrace the rise it has witnessed from 18,840 to 23,340 between the period October, 2024 to May, 2024. The crucial support levels to keep handy are 21,100 which is the 200 day moving average and 50 per cent Fibonacci retracement level of the entire upmove, said Jatin Gedia, Technical Research Analyst at Sharekhan.
 

"A close below this support zone can lead to further decline towards 20560 which is the 61.82% Fibonacci retracement level. On the upside, 22,310 – 22,550 shall act as an immediate hurdle from a short term perspective. The range of consolidation is likely to be 21,000 – 22,500," he added.
 

Nifty Bank Outlook
Bank Nifty experienced a sharp decline, finding support near its 200-day EMA at 46,200. Amid uncertainty over the election results, we may observe additional selling pressure if Bank Nifty falls below its 200-day EMA, said Rupak De, Senior Technical Analyst, LKP Securities "46,200 will serve as an immediate support level, while 48,000 will act as the first resistance level for Nifty Bank."
 

Nifty Bank has also broken down from the rising channel indicating change in trend, said Gedia from Sharekhan. "We expect the Nifty Bank to correct towards 46,150 – 44,000 which are the 200 day moving average and the 38.2 per cent Fibonacci retracement level of the rise from 32,300 – 51,100. On the upside, 48,600 – 49,200 shall act as an immediate hurdle," he added.
 

Technically, the Nifty Bank has sustained below a low of hanging man candlestick pattern, leading to weakness, said Yedve from Asit C Mehta. "On the downside, 100-DEMA is placed near 46,350, which will act as key support, with resistance near 51,130 levels," he said.