With this, analyst Sudeep Shah, Vice President and Head of Technical & Derivatives Research at SBI Securities, interacted with ET Markets on the outlook for the Nifty and Bank Nifty as well as an index strategy for the week ahead. Below are the edited excerpts from his chat:
Despite Friday’s sharp recovery driven by the US Fed rate cut, Nifty still ended the week in the red. What path do you see ahead as the index consolidates from recent highs?*
The benchmark index Nifty started December with strong momentum, hitting a new all-time high of 26,325 in the very first trading session. But what followed was something the market has become familiar with: a controlled pullback. Since August, Nifty has shown a very consistent pattern of shallow corrections, never falling more than 3.5%, and each correction lasting about 5 to 10 trading sessions. This disciplined behavior defined the entire rally, leaving traders wondering if the same script would play out again.
In the most recent decline, the pattern repeated itself almost perfectly. The index corrected almost 2.50% and the pullback lasted eight trading sessions, remaining well within the historical rhythm. The 50-day EMA again acted as a strong support zone, halting the decline and allowing the index to build a solid base. For the third week in a row, the index formed a small-body candle with a long lower shadow, reinforcing bullish intent at lower levels. But what this repeated behavior indicates about Nifty’s underlying strength becomes even more interesting from here.
Currently, the index is trading above its short- and long-term moving averages, both of which have started to rise, often heralding renewed directional momentum. The daily RSI has also risen sharply from the 44.50 zone and is now trading near 54.48, well above the nine-day average. This alignment between trend and momentum raises a critical question: Is the index quietly preparing for its next breakout?
Going forward, the 26,150–26,200 zone stands out as the immediate resistance band for the index. A sustained move above 26,200 could see a quick rally towards 26,350, followed by 26,500 in the near term. On the other hand, the 50-day EMA region of 25,750–25,700 will act as a reliable support zone. With the Indian VIX cooling off and the market stuck in a consolidation range, what is the best strategy for smart traders: buy on dips or sell on rise?Given the current chart structure, we recommend that you adopt the buy-on-dips strategy for the time being.
It has been a week since the RBI cut rates by 25 basis points. We saw a mixed reaction: private banks held their ground, but the PSU banks faced a ‘bloodbath’ earlier this week. How do you view the banking sector now?
PSU banks are currently witnessing healthy profit bookings after a stellar rally that started in late September. Such consolidation is normal and often follows a strong breakout, allowing the sector to absorb gains before taking the next step. Earlier, PSU banks were in the lead while private banks lagged behind. With PSU names taking a breather, private banks are coming into action and helping keep the broader banking index stable.
This shift is also visible in the charts. The Nifty Private Bank/Nifty ratio has crossed a downward trend line, indicating an improvement in the relative strength of private banks. Even as the Nifty recently hovered around 50-DEMA, Bank Nifty outperformed its 20-DEMA and remained firmly above its 20-DEMA, keeping the short-term trend intact.
As long as Bank Nifty remains above the 59,000 level, the structure remains positive and the index is in a good position to move higher.
Bank Nifty has managed to defend the crucial support level of 59,000 and formed a Doji pattern on Friday. Given this background, what is your technical view on the banking index?*
The benchmark banking index, Bank Nifty, underperformed the frontline indices last week, closing at 59,390 with a weekly loss of 0.66%. For the second week in a row, the index formed a small-body candle with a long lower shadow, indicating buying interest at lower levels but a lack of strong bullish conviction.
Throughout the week, the index has largely hovered around the 20-day EMA, reflecting indecision and subdued momentum. The daily RSI remains in a sideways zone, indicating consolidation rather than a clear trend.
Going forward, the 59,700-59,800 zone will act as a crucial resistance. A sustained move above 59,800 could trigger a sharp upward rally towards 60,500, and if momentum continues, even 61,000 in the near term. On the downside, the 58,800-58,700 zone will serve as immediate support, and any break below this level could trigger further weakness.
Are there any favorite bank or NBFC names that you are looking at, especially after the recent correction in the PSU space?
Among retail lenders, Axis Bank and IDFC First Bank appear well positioned to do well. In both stocks, the RSI is rising and has stabilized around 60, indicating strengthening momentum. They also continue to trade above their key short- and long-term moving averages. Furthermore, the MACD line is above both the signal line and the zero line, a sign of positive trend strength and continued bullish momentum, indicating that the upward movement may continue.
In the NBFC space, Muthoot Finance and Chola Finance stand out as strong contenders. Muthoot Finance recently emerged from a three-day consolidation phase to close solidly higher, while Chola Finance staged a strong recovery from its 20-DEMA. Both counters are trading comfortably above their major moving averages and maintaining a higher-high, higher-low price structure. This keeps their trend decisively positive and positions them well for further upside potential.
Now that both the Fed and RBI outcomes are out, what will be the next big trigger for the markets? Will the focus shift to domestic inflation data or other signals from the global market?
Now that the Fed and RBI events are behind us, the next major trigger for global equities will likely be the Bank of Japan’s policy decision. Markets are pricing in the possibility of a rate hike by the BOJ, and any move toward higher Japanese rates could cause the carry trade to come to a halt. Because global investors often borrow in low-yield yen to invest in higher-yield markets such as India, a rise in Japanese yields could force a reversal of these flows, creating volatility in emerging markets.
However, beyond the global signals, the most watched development for Indian markets is the India-US trade deal. Progress on this agreement has been slower than expected, and the lengthy delay has kept market participants on edge. A favorable announcement could provide a strong boost to sentiment, given the potential long-term benefits for both economies.
On the domestic front, the upcoming quarterly earnings season in January will be another key driver, providing clarity on business momentum heading into 2026. All this will lead to the Union Budget on February 1 next year, the next major domestic event that could shape the market’s medium-term outlook.
To summarize, do you think this market is currently for index traders, or should the focus be purely on stock selection given the sector-specific rotation?
Given the current market environment, traders should focus on stock selection as we have witnessed sector-specific rotation over the past few trading sessions.
Metal stocks were clearly in the spotlight on Friday amid hopes for a Chinese fiscal stimulus. What other sectors do you think are strong at the moment?
The Nifty Metal index made a strong technical break and crossed the neckline of an Adam and Adam Double Bottom pattern on the daily chart. This bullish structure was further validated when the index rose above its major moving averages, signaling the strength of the trend. Adding to the optimism, the daily RSI climbed above 60, reinforcing the positive momentum. Based on the measured line of the Double Bottom pattern, the upside target for Nifty Metal is placed at 10,870, indicating room for further gains in the near term.
Besides metals, the Nifty Private Bank, Financial Services and Automobile sectors are expected to maintain their outperformance, supported by strong technical conditions and improving sentiment. These sectors are likely to continue to attract the attention of traders and investors looking for leadership in the current market phase.
Conversely, the Nifty FMCG, Media, India Defence, CPSE and PSE indices are likely to continue their underperformance.
Stocks like Tata Steel and L&T showed significant strength in Friday’s session. What other stocks do you think show strength for new participation?
Tata Steel has shown a strong recovery from the 200-day EMA zone in the past three sessions, supported by renewed momentum in the metals sector. L&T, meanwhile, broke out of the six-day consolidation band and managed to close higher despite intraday profit booking. The stock continues to trade above all major moving averages, keeping its structure intact.
Are there any other sectors or stocks we should keep on our watchlist?
Currently, Metals, Autos and Private Banks are the sectors showing notable relative strength against the Nifty.
In the auto space, stocks like Ashok Leyland, Maruti and Motherson look strong. Their RSIs are trending upward and are well above 60, while prices remain well above the major short- and long-term moving averages, indicating continued upward momentum.
In the Metals sector, renewed sectoral strength is reflected in Hindustan Copper, Hindustan Zinc and Hindalco. Silver prices hitting record levels are supporting Hindustan Zink’s rally. Hindalco has emerged from an eleven-day consolidation to close higher, while Hindustan Copper is trading well above its previous major resistance zone, with momentum indicators supporting further gains.
In the field of private banking, Axis Bank and IDFC First Bank continue to distinguish themselves. Their RSIs are rising and the MACD line is well above the zero line, indicating strong underlying trend strength and positive momentum, both of which support continued outperformance.
These are the stocks showing strong preparations for new entry.
(Disclaimer: Recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of The Economic Times)
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