Key levels to watch out for Nifty Bank, Nifty as weakness in Indian markets may continue

Indian stock markets witnessed an intense selling pressure on Tuesday with both the benchmark indices- Sensex and Nifty50- falling more than a per cent each. The pain was severe in the second rung counters with BSE midcap index falling more than 2.5 per cent and the BSE smallcap index crashing 4 per cent in the previous trading session.

The severe carnage wiped out about Rs 9 lakh crore from investors' wealth and market participants believe that the sentiments have turned sluggish for the local equities on the back of rising appeal of China, consistent FII selling, rich valuations and muted Q2 earnings for India Inc. They believe more pain is coming in.
 

Nifty is likely to face volatility today, potentially ending with a negative bias, as yesterday’s decline may prompt further profit-taking, bringing bears back into focus, said Prashanth Tapse, Senior VP (Research) at Mehta Equities, with a sell recommendation for both Nifty and Nifty Bank .
 

"Key factors driving this sentiment include concerns over the Fed’s slower rate cuts due to strong economic data, rising US bond yields with the 10-year Treasury hitting 4.2%, disappointing Q2 earnings from Corporate India, heavy FIIs selling and firm crude oil prices amid rising tensions between Israel and Iran," he said.

Nifty futures on the NSE International Exchange traded 37 points, or 0.15 per cent, lower at 24,538, hinting at a negative start for the domestic market on Wednesday.

Nifty has now corrected by around 7 per cent from its record high, reaching the critical moving average support at the 100 DEMA. The outlook suggests further downside, particularly in the midcap and smallcap spaces, said Ajit Mishra, SVP of Research, Religare Broking. "We recommend adjusting trades accordingly and advise against adding to losing positions," he said.

October has been a record breaking month in terms of foreign institutional investors (FIIs) selling. Sustained selling by FIIs has topped Rs 92,000 crore by October 22, as per NSDL data, marking it the highest-ever shares in one month.

Bearish sentiment continued to dominate the domestic market today amid heightened volatility, with small and midcap stocks taking the biggest hit. The recent sharp rise in US bond yields signals diminished expectations for aggressive rate cuts by the US Fed, also affecting fund flows to EMs, said Vinod Nair, Head of Research at Geojit Financial Services.

"In the short term, this bearish outlook may persist due to sluggish earnings growth trends. However, the RBI's latest bulletin upholds India's GDP growth forecast of 7.2 per cent for FY25, suggesting that the Q2 slowdown is temporary, with festive season consumption expected to rebound and ease the pressure on earnings downgrades," he said.

Even the global signals are not favouring the sentiments. Asian peers outside Japan edged lower - tracking global peers, which dropped for the second session in a row amid uncertainty ahead of the US presidential election. Even the gold prices jumped to record high and the dollar was on the rise again.

Oil prices edged down on Wednesday after industry data showed the US crude inventories had swelled more than expected, while the market kept watch on diplomatic efforts in the Middle East as Israel continued attacks on Gaza and Lebanon. Brent crude futures dipped 31 cents, or 0.4 per cent, to $75.73 a barrel.

Technical Outlook: Nifty
The Nifty slipped from the head and shoulder pattern on the daily timeframe, leading to a sharp fall during the day. Sentiment weakened after the Nifty broke below the crucial support level of 24,700. It may remain weak as long as the index stays below 24,700, with a 'sell on rise' strategy favored by market participants, said  Rupak De, Senior Technical Analyst, LKP Securities.

"The index has fallen below the 100 EMA for the first time since early June of this year. On the lower end, support is placed at 24,400, and if the index falls below this level, it may extend its correction towards 24,000, he said.

Technical Outlook: Nifty Bank
Bank Nifty which was holding on but also down and witnessed a sharp selling pressure, said Jatin Gedia, Technical Research Analyst at Sharekhan. "We expect weakness to have a rub off effect on the Banking stocks as well. On the downside, support is placed at 51,000 below which it can slip towards 50,200. On the upside 51,800-51,900 shall act as an immediate hurdle".