F&O interview | Heavyweights protect Nifty from deep cuts: Sudeep Shah

The benchmark index Nifty started the month of December on a strong note, posting a new all-time high in its very first trading session. However, this early enthusiasm soon suffered a healthy setback, a typical breather after a sharp surge. Interestingly, this decline found a strong base near the 20-day EMA – a zone that also aligns perfectly with the rising channel’s lower trendline, adding to its technical significance. From this support area, the index staged a smart recovery, trimming some of its losses and ultimately ending the week around 26200, down a modest 0.06%.A notable trend during this phase was the steady leadership of heavyweight sectors like Nifty Bank and Nifty IT. Their sectoral rotation has been crucial in keeping the frontline indices resilient and limiting deeper corrections. On the other hand, the broader market tells a contrasting story, especially the Nifty Small Cap 100 index, which continues to trade below the key 200-day EMA, indicating caution beneath the surface.

Going forward, the current chart structure suggests that Nifty remains well poised to continue its upward journey. We expect the index to move towards 26350, followed by 26500 in the short term. On the other hand, the 25950–25900 zone is likely to act as a strong support and cushion any intermediate declines.The index is also facing resistance at higher levels. What do you think could push the market further?

As long as the index trades above the 25950-25900 zone, it is likely to continue its upward journey and challenge the 26350 followed by 26500 in the near term.

Any strategy for savvy traders? How does the banking sector view this 25 basis point interest rate cut?

The banking benchmark index, Bank Nifty, recently touched a new all-time high before entering a pullback phase. This corrective move found strong support near the crucial 20-day EMA, indicating the underlying strength of the trend. Following the Reserve Bank of India’s announcement of a 25 basis point rate cut, the index staged an impressive recovery, reaffirming bullish sentiment. On the weekly chart, Bank Nifty forms a small-body candle with a pronounced lower shadow, a classic indication of buying interest at lower levels. Adding to the positive undertone, the daily RSI respected support around 61 during the return and then rose above the nine-day average. This behavior is consistent with the RSI range-shift principle and reinforces the bullish outlook.

From a technical perspective, the current chart structure suggests that Bank Nifty is well positioned to extend its journey north. In the short term, the index is likely to test 60400, and if momentum continues, 61000 could be the next milestone. On the other hand, the 59200-59100 zone is expected to act as a strong buffer against any immediate declines.

Any favorite bank and NBFC names?

The RBI’s rate cut by 25 basis points led to strong buying in banking and NBFC stocks. Shriram Finance and Chola Finance rose just over 3% to close above their 20-day EMA. A rising RSI indicates improving momentum, while wider DI lines indicate a strengthening trend. In banking, Kotak Bank and ICICI Bank are trading well above major moving averages, with MACD above the signal and zero line, reflecting continued bullishness. A rising ratio line in the Nifty Private Banks/Nifty ratio chart further indicates continued outperformance of private banks.

What do you think will be the next big trigger for the markets? Will this be the Fed’s outcome? What impact is this likely to have on our markets?

The next big trigger for global and Indian markets is likely to come from two major central bank policy announcements: the December 10 Fed rate decision, where a 25 basis point cut is widely expected, and the December 19 BoJ meeting, where a rare rate hike to 0.75% is increasingly being priced in. A Fed rate cut would likely revive global risk appetite, strengthen emerging market flows and lift Indian equities and the rupee. On the other hand, a tightening by the BoJ could strengthen the yen, unwind yen carry trades and trigger global capital shifts, potentially creating volatility in emerging markets including India.

To summarize, do you think this market is for index traders or should the focus now be on equities?

The current market environment favors index trading over stock-specific strategies. This is because only a handful of heavyweight stocks are driving the upward movement, while the broader market is under pressure. Notably, the Nifty Small Cap 100 index is trading well below its 200-day EMA, indicating weakness in smaller names. Given this difference, it seems wiser at this point to focus on indices rather than individual stocks.

Which sectors are currently in the spotlight?

From a technical perspective, the Nifty Private Bank, Financial Services, IT and Auto sectors are expected to maintain their outperformance in the near term, supported by strong price structures and momentum indicators. These sectors have shown resilience and are likely to continue to attract continued buying interest.

On the other hand, Nifty Consumer Sustainable, India Tourism, Media, Realty, PSE, CPSE and Defense are likely to underperform in the near term as their chart patterns and relative strength suggest weakness compared to frontline indices.

Which stocks do you think would show strength for participation?

Technically, ABCAPITAL, ASIANPAINT, AXISBANK, BAJFINANCE, COFORGE, HCLTECH, INDUSTOWER, KOTAKBANK, LTF, NATIONALUM and PERSISTENT are showing strength.

(Disclaimer: The recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of The Economic Times.)