Diwali Market Outlook: Nifty Set to Stabilize as Sectors Shift, says Sudeep Shah of SBI Securities

This week, the stock market faced a tough time, with bears overpowering bulls due to ongoing selling by foreign portfolio investors (FPIs), weak expectations for Q2 earnings, and high valuations. The BSE Sensex ended up 218 points, or 0.27%, at 81,224, while the NSE Nifty rose by 104 points, or 0.42%, to close at 24,854.

Sudeep Shah, Deputy Vice President and Head of Technical & Derivatives Research at SBI Securities, shared his views on the Indian stock indices as we approach Diwali, a period usually known for market gains. He noted that while Diwali typically brings a positive vibe, this year’s market performance is influenced by global uncertainties, geopolitical issues (especially in the Middle East), fluctuating crude oil prices, and domestic worries like inflation and interest rates. Notably, FPIs have pulled out a record ₹80,217.90 crore from Indian equities this October, marking the highest outflow ever.

Shah expects the Nifty index to trade between the 50 and 100-day exponential moving averages (EMAs) in the near term. Currently, the 50-day EMA is at 25,027, and the 100-day EMA is at 24,479.

Key Technical Levels to Watch

For Nifty, immediate support is seen in the range of 24,550-24,500. If it falls below 24,500, we could see a sharp decline to around 24,100. On the upside, the 50-day EMA zone of 25,000-25,050 will be a crucial barrier.

For Sensex, the 100-day EMA zone of 80,200-80,100 acts as support. If it drops below 80,100, it might test levels around 78,500. Conversely, the 50-day EMA zone of 81,800-81,900 will be a challenge for any upward movement.

Sectors to Watch

Shah highlighted that the Bank Nifty has outperformed other indices, rising over 2% recently and forming a bullish pattern. The Bank Nifty is above both its 20 and 50-day EMAs, and the daily Relative Strength Index (RSI) indicates a bullish trend. This suggests potential for further gains in the coming sessions.

The Nifty IT sector has also been performing well and is expected to continue its upward trend, with the immediate resistance between 43,300-43,400.

Stocks with Strong Momentum

Some specific stocks showing bullish signs include ABREL, NATIONALUM, BOMDEING, HDFCLIFE, CESC, HINDALCO, GREAVESCOT, USHAMART, and FIVESTAR.

Short Selling Opportunities

On the flip side, the Nifty Auto sector has shown weakness, and stocks like Bajaj-Auto, Tata Motors, Maruti Suzuki, and MRF could be considered for shorting.

Market Sentiment and Derivative Activity

The sentiment in the derivatives market is mixed, with a notable concentration of call options at the 25,000 strike and significant put options at 24,800. This suggests a trading range of 25,138 to 24,582 in the near term.

Jewellery Sector Outlook

With rising gold prices and the festive season approaching, the jewellery sector is expected to perform well. Stocks like PCJWELLER, KALYANKJIL, GODIAM, TBZ, and THANGAMYL are showing strong upward momentum, aligning well with seasonal demand during Dhanteras and Diwali.

Consumer-Facing Sectors

Both Nifty FMCG and Nifty Auto are currently in downtrends, trading below their key EMAs. The bearish sentiment suggests that the potential festive boost might already be priced in, indicating these sectors may underperform in the near future.

Conclusion

Overall, the Nifty Bank and Nifty IT sectors are recommended for investment, with stocks like ICICI Bank, AXIS Bank, Wipro, HCL Tech, and Mphasis showing promise for potential gains.