Nifty Plunges 270 Points Amid Global Selloff, Faces Hurdle at 25K: Sudeep Shah of SBI Securities Highlights IT and FMCG Strength

The Nifty dropped 270 points on Friday, closing at 24,530 amid a global selloff. The broader market saw even sharper declines, falling more than 2%. This drop was mainly due to new tensions between the US and China, leading to global profit booking.

All sectors ended in the red, with Metals being the biggest loser, dropping 4%. However, the IT sector remained resilient thanks to Infosys’ better-than-expected results. Investors also shifted to defensive sectors like FMCG, which is seeing a demand revival with increasing rural recovery.

Market participants are cautious ahead of the Union Budget next week on July 23, which will provide the next direction for the market. The earnings season is also picking up pace, likely resulting in stock-specific actions.

Sudeep Shah, Deputy Vice President and Head of Technical & Derivatives Research at SBI Securities, shared his outlook on Nifty and Bank Nifty and his strategy for the upcoming week with ET Markets. Here are the key points from his chat:

Sensex at All-Time Highs

With Sensex reaching all-time highs, our outlook suggests a cautious approach. Last week, the Sensex hit a new high of 81,587 but failed to maintain those levels on Friday, leading to profit booking. This resulted in the formation of bearish candlestick patterns on the daily and weekly charts, indicating a potential limited upside in the short term. Momentum indicators and oscillators also support this cautious outlook.

Nifty’s Movement

For the seventh consecutive week, Nifty has ended on a positive note, marking a fresh all-time high of 24,854 during the week. However, on Friday, it failed to sustain higher levels and witnessed profit booking of over 250 points, forming a Bearish Engulfing candlestick pattern on the daily scale and a Shooting Star candlestick pattern on the weekly scale. These patterns, along with a bearish crossover in the daily RSI, indicate a limited upside for the short term.

Talking about Nifty levels, the 20-day EMA zone of 24,250-24,200 will act as strong support. Any sustainable move below 24,200 will lead to further profit booking down to 23,900 levels in the short term. On the upside, the zone of 24,850-24,900 will be the crucial hurdle for the index, which is expected to trade between 24,200 to 24,850.

Bank Nifty Consolidation

The banking index, Bank Nifty, has been oscillating in a range of 52,818-51,749 zones for the last nine trading sessions, underperforming frontline indices and mostly forming indecisive candles. The ratio chart of Bank Nifty compared to Bank Nifty is at a 39-day low, indicating underperformance.

Due to the consolidation, the Bollinger Band has narrowed considerably on a daily scale. This suggests a significant advance or decline is likely. We expect a trending move in the index in the next couple of trading sessions.

Talking about levels, the zone of 51,900-51,800 will act as strong support. If the index slips below 51,800, the next support is at 51,200, while the zone of 52,700-52,800 will be the crucial hurdle on the upside. Any sustainable move above 52,800 will resume its upward journey, likely testing 53,400 in the short term.

Focus on Railway and Defense Stocks

Railway and defense stocks usually gain attention around the Budget. However, they have witnessed some profit booking just ahead of the Budget. Despite this, the major trend of these stocks remains bullish. We recommend waiting until after the Budget to build fresh positions in these sectors.

Other Sectors of Focus

From a technical perspective, the Nifty IT and Nifty FMCG sectors appear strong. Given the potential volatility surrounding the Budget, it’s advisable to stay invested in these defensive sectors to mitigate significant losses.

Budget and Nifty Monthly Expiry

With the upcoming Budget and Nifty monthly expiry next week, it might not be an ideal time for traders to take fresh positions in the index due to expected volatility. The technical chart of the Nifty index also indicates caution at current levels.