Indian markets will be looking for new triggers as earnings season comes to an end this week. With this, analyst Sudeep ShahVice president and head of technical and derivatives research at SBI securitiesinteracted with ETMarkets 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:
Q: Nifty closed 0.8% lower this week, largely hit by the debacle in IT stocks. What are the signals for traders and investors for next week’s trading?
Last week, the benchmark index Nifty once again failed to stay above the psychological mark of 26,000, leading to sharp profit booking. After reaching a high of 26,009, the index corrected nearly 550 points in just the last two trading sessions of the week – a rapid move that signals supply is at a higher level. While the fall may seem routine at first glance, the underlying causes of this correction tell a much more compelling story.
The biggest setback during this phase came from the Nifty IT index, which fell over 8% last week and is now down over 14% month-to-date, marking one of the sharpest recent declines. The sell-off was largely driven by growing concerns about the rapid expansion of AI-driven startups, which are increasingly seen as disruptive to traditional IT services providers. The speed and intensity of the decline indicate that this may not simply be a downtrend, raising an important question as to whether the worst has already been priced in.
From a technical perspective, the IT package continues to send strong warning signals. All components of the Nifty IT index are trading below their major moving averages and are firmly on a downward trajectory. The momentum indicators remain anchored in bearish territory, with no visible signs of reversal. In such a situation, an attempt at bottom fishing could be premature unless the cards start to tell a different story in the coming sessions.
Coming back to Nifty, it has now fallen below the 20-day, 50-day and 100-day EMAs, indicating a clear deterioration in trend strength in the short and medium term. More importantly, both the 20-day and 50-day EMAs have started moving lower – a subtle but powerful bearish signal. Adding to the warning, the daily RSI failed to reach the 60 mark during the recent pullback and has now fallen below the nine-day average, suggesting upside momentum may remain limited – at least for now.
Going forward, the 25,350–25,300 zone is likely to act as immediate support for the index. A sustained move below 25,300 could accelerate the correction towards 25,100, followed by the crucial 24,900 mark. On the upside, the 50-day EMA zone between 25,650 and 25,700 is a huge hurdle.
Q: What are important Nifty and Bank Nifty levels for next week’s trading?
Going forward, the 25,350–25,300 zone for Nifty is likely to act as an immediate support for the index. A sustained move below 25,300 could accelerate the correction towards 25,100, followed by the crucial 24,900 mark. On the upside, the 50-day EMA zone between 25,650 and 25,700 is a huge hurdle.
For Bank Nifty, the 20-day EMA zone of 60000–59900 will serve as the immediate support area. A sustained move below 59900 could lead to a further downtrend towards the 50 day EMA, which currently stands at 59467. On the upside, the 60600-60700 band is expected to act as a crucial hurdle, and only a decisive close above this range can pave the way for another upward move.
Question: The view on IT stocks is largely bearish, although some analysts are taking an opposing view on the sector, arguing for long-term promise and favorable risks following the extended correction. Data shows that no stock has delivered positive returns over a two-year period. In light of this, what is your advice to investors?
Nifty IT witnessed a sharp sell-off last week, falling over 8%, and is now down over 14% in the month to date, marking one of the steepest recent declines. The index has also fallen below its key support zones, indicating a clear deterioration in trend strength. Now that the moving averages have turned lower and the momentum indicators are firmly in bearish territory, the overall structure suggests that short-term selling pressure may continue.
All components of the Nifty IT index are trading below their major moving averages and are firmly on a downward trajectory. The momentum indicators remain anchored in bearish territory, with no visible signs of reversal. In such a situation, an attempt at bottom fishing could be premature unless the cards start to tell a different story in the coming sessions.
Q: PSU Bank shares appear to be a much safer option as there is no direct link between the trade deal and the industry. What is your opinion and do you have any stock recommendations?
The PSU Bank index burst almost 6% on budget day, falling below the 50-day EMA, but the subsequent recovery was very strong, with the index rebounding sharply to hit a new all-time high near 9295 on February 12. Over the past year, it has been the best performing index with gains of almost 53%, clearly indicating sustained leadership in the sector.
Technically, the index continues to trade above the major short- and long-term moving averages, keeping the broader trend bullish. The PSU Bank/Nifty ratio chart has also touched a new high and remains on an upward trajectory, indicating continued relative outperformance against the broader market. The zone 8970-8950 remains a crucial support zone. As long as the index remains above this area, the bullish trend structure will likely remain intact.
At the stock level, Indian Bank and Union Bank of India have both been consolidating within a range since mid-January after strong previous upward movement, indicating a healthy break. This type of time correction usually triggers the next part of the trend. A strong follow-on move and a decisive break above their respective consolidation ranges could lead to a continuation of the upward move in both stocks.
Question: The India VIX rose 11% this week, providing opportunities for day traders in the cash and derivatives markets. How can traders take advantage of this?
Since hitting 16.11 on Budget day, India’s VIX cooled almost 35% over the next ten sessions, in line with the usual post-Budget decline in volatility, but historically volatility tends to rise again in subsequent weeks. In the last fifteen budgets, the VIX closed negative immediately after the event in eleven cases (average −8.82%), but turned positive in eight of the subsequent one-month periods, with an average increase of 17%, and the current pattern is similar.
For traders, a rising VIX environment means wider intraday ranges and faster price swings, so money market day traders can focus on high beta leaders and breakout/breakdown setups with smaller position sizes and faster profit booking, while derivatives traders should avoid large naked positions due to the higher premium risk and instead favor structures with defined risks, such as debit spreads (bull call or bear put spreads) and hedged directional trades, which allow participation in moves while managing downside risks as volatility continues to increase.
Q: What sectors or themes are on your radar next week?
Nifty Consumer Sustainables, Nifty Auto, Nifty Infrastructure, Nifty Manufacturing and Nifty Financial Services will be on the radar next week as they are currently the strongest sectors on the charts and are positioned in the leading quadrant of the Relative Rotation Graph (RRG), indicating superior relative strength and momentum.
Consumer Sustainables has posted a sharp decline from the lows of 33383, indicating strong demand at lower levels, while the Auto and Manufacturing sectors have rebounded decisively from their 200-day EMA and rose rapidly, indicating trend support and continuation potential. Infrastructure is showing clear relative outperformance, with the Infra/Nifty ratio chart showing a downtrend line break followed by a solid follow-through, and Financial Services continues to show outperformance, with the ratio line versus Nifty higher, indicating leadership is likely to remain with these themes if the broader market remains stable.
Q: SCI, Kirloskar Oil and Engineers India were big winners this week, while Firstsource, eClerx and Coforge were the biggest losers. What should investors do with it?
Post the results, Shipping Corporation of India saw a sharp rise and strong follow-through but is currently hovering near the previous swing high zone of 280-282, which acts as a supply area. Price behavior around this band will be important in assessing whether momentum is building or whether the stock is spending more time consolidating.
Kirloskar Oil Engines continues to exhibit a higher-high, higher-low structure and is trading above the major moving averages after a strong recovery since late January, indicating that trend strength remains visible as long as the price remains above the nearby 1330-1320 support band.
On the weaker side, Firstsource Solutions has undergone a sharp correction and has fallen below the 275-270 support zone, which may now behave as an overhead resistance area, making price acceptance back above or rejection near this band the key monitorable factor.
eClerx Services has broken an uptrend line and the 200-day EMA, indicating loss of medium-term structure, with 3950 acting as a key reference level for trend assessment.
Coforge has also seen a double-digit weekly correction amid broader IT sector pressure related to AI disruption headlines. From a tactical point of view, this space may be better approached after signs of stabilization and base formation rather than during active weakness.
(Disclaimer: The 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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