How to play the chaos: Traders brace for a breakout. Will Nifty hold or slip further?

Indian equities ended the week on a cautious note as the Nifty 50 slipped below the crucial 22,800 mark, closing at 22,795.90, down 117.25 points or 0.51%. The benchmark BSE Sensex mirrored the weakness, shedding 424.90 points or 0.56% to settle at 75,311.06.

The market downturn was driven by sectoral declines, with Auto, Pharma, and Healthcare indices losing nearly 2%. Pharma stocks bore the brunt of a sharp sell-off following former U.S. President Donald Trump’s surprise announcement of new tariffs on pharmaceuticals. Meanwhile, the metals sector was the sole bright spot, buoyed by optimism around potential protectionist measures against Chinese imports.

As per analysts, with the key support level of 22,800 breached, the downward trend may persist. The next critical support level to watch is 22,500, while resistance levels stand at 23,000 and 23,200. They see Nifty to trade within the 22,500-23,200 range over the coming week.

Key drivers

Trump’s renewed threat of reciprocal tariffs on India and China added to market anxiety. While details remain unclear, the uncertainty weighed on sentiment, particularly for export-driven sectors such as pharma.

Foreign institutional investors (FIIs) offloaded Indian equities worth Rs 3,449.15 crore on Friday, while domestic institutional investors (DIIs) stepped in as net buyers, purchasing Rs 2,884.61 crore worth of shares.

A small red candle on Nifty’s daily chart with minor upper and lower shadows suggests heightened volatility and investor uncertainty.

Experts say Nifty is hovering around the critical 22,700 support level, which aligns with the 38.2% Fibonacci retracement. However, it has shown little sign of a strong rebound from this level, indicating continued weakness in the market.

If Nifty breaches 22,700 decisively, it could open the door to 22,450 in the near term, while upside momentum would need a breakout above 23,000-23,100, he added.

Currency pressures mount: The rupee weakened by Rs 0.05 to 86.70, despite a dip in the dollar index to $106.60. FII selling and speculation around lower import duties on EVs contributed to pressure on the currency.

Crude decline: Brent crude futures slid 2.68% to $74.43 per barrel, while WTI fell 3.12% to $70.22, offering some relief to oil-sensitive sectors.

Weak sentiment: The FOMC minutes reinforced a hawkish stance, dimming hopes of rate cuts and fueling uncertainty in global markets.

The pain points

Market turbulence hit smallcaps hard, with over 400 stocks posting losses. Suratwala Business Group (-53%) and Best Agrolife (-31%) led the losers’ pack. In the broader BSE500, Mahindra Logistics, CreditAccess Grameen, and Natco Pharma were among the worst hit.

On the flip side, select midcaps and largecaps held firm. NTPC topped the Sensex gainers’ list with an 8.6% return, followed by Zomato (7%) and Tata Steel (5%).

India’s lagging performance compared to its Asian peers remains a concern, with FII outflows driving a “sell India, buy China” trend. Analysts suggest that market sentiment will likely remain cautious until corporate earnings show meaningful recovery and global liquidity conditions improve.

Experts suggest that if the downtrend persists, Nifty could slip toward 22,500 in the short term, while any recovery may face strong resistance around the 22,850 level.