F&O Talk| Nifty records 11 sessions of tight moves after rallying to 1,500 points. These are the key levels that Sudeep Shah looks at

Markets snapped their four-week winning streak to end slightly lower as profit booking and mixed global signals weighed in. While the tone remained largely positive and volatile during the early sessions, selling at the end of the week erased early gains.

Sector performance remained mixed throughout the week. Metals, energy and real estate stocks posted gains, while the auto, pharmaceutical and IT sectors came under pressure due to profit-taking. Despite the overall volatility, the broader indices outperformed, with the Midcap index up 1% and the Smallcap index up 0.7%, reflecting selective buying across segments.

With this, analyst Sudeep ShahVice president and head of technical and derivatives research at SBI securitiesinteracted 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:

The Nifty has put up a strong performance in the past week. What factors do you think drove this rally and how far do you expect it to go in the November series?

Nifty spent the week in a volatile but consolidating phase after a stellar rally of 1,500 points in October from 24,588. The index neared all-time highs but lost momentum due to profit booking and global caution. A weekly Shooting Star candle indicates short-term exhaustion, although the broader uptrend remains intact. The index has reached a tight range of 26,104–25,711 over 11 sessions, with the RSI cooling to 57.8 and the ADX still supporting trend strength. Global signals, especially Powell’s hawkish stance after the rate cut, weighed on sentiment, while optimism around a possible trade deal between India and the US provided support in midweek. Looking ahead, 25,520–25,500 remains key supports, with resistance at 26,100–26,150. A breakout above this zone could spark renewed bullish momentum toward record highs.

Are FIIs huge sellers in the index? Does this ring a warning bell for us?

FIIs ended October as net sellers of Rs 2,347 crore, despite maturity inflows of Rs 10,339 crore, largely driven by derivative adjustments. They settled over 1.2 lakh equity futures, which indicated declining positions instead of new long positions. The long-short ratio fell from 26% to 17%, due to increasing short positions. Macroeconomic signals – firm US yields near 4.08%, a strong dollar at Rs 88.73 and DXY hovering around 100 – are adding to the cautious sentiment. With the Indian VIX slowly moving higher, short-term volatility may persist. The FIIs are likely to remain vigilant ahead of developments surrounding the India-US trade deal and the Bihar elections in November. Overall, the data reflects a defensive undertone, indicating selective participation rather than aggressive risk-taking by foreign investors.

What is your view on the Bank Nifty?

Bank Nifty consolidated after hitting a record high of 58,578, suggesting gains are being booked at higher levels even as the broader structure remains positive. The index briefly surpassed the resistance at 58,200–58,300, but later faced selling pressure and formed a bearish candle with a long upper shadow. The weekly pattern resembles a tweezers tip: an early sign of momentum fatigue. The RSI fell from 76.6 to 62.3, reflecting moderation after an overbought phase, while MACD and ADX continue to confirm a strong trend. Support is at 57,600-57,500, near the 23.6% Fibonacci retracement zone. On the upside, a decisive move above 58,500 could reignite momentum, taking the index towards 59,000-59,500. Overall sentiment remains constructive, although traders may prefer to buy on dips rather than chasing highs.

How do you think SEBI measures to limit Bank Nifty component weights will impact the index and its independent components?

SEBI’s decision to reduce the weightings of Bank Nifty will make the index more balanced and less dependent on a few big banks. The weight of the top constituents will decrease from 33% to 20%, while the combined share of the top three will decrease from 62% to 45%, implemented in phases until March 2026.

This change will limit volatility and concentration risk and ensure fairer representation of mid-sized banks.

While it could dampen index gains somewhat during phases when heavyweights like HDFC Bank or ICICI Bank are outperforming, it opens the door for greater participation from PSU and mid-tier lenders like Union Bank, Indian Bank and Bank of India.

Overall, this move improves diversification and index stability in the long term.

Speaking of the November series. What does the rollover data suggest?

October’s run was exceptional for Nifty futures, with the index registering a 5.29% rise – its best monthly gain since June 2024. Despite this strong performance, the rollover fell to 75.79% from 82.60% in September, indicating unwinding of positions or short covering rather than aggressive rollover buying. Nifty consolidated in a range of 25,711-26,104 till October end, indicating traders were waiting for fresh triggers.

However, all major moving averages remain positively aligned, confirming a continued bullish structure. Momentum indicators continue to signal underlying strength, suggesting the uptrend could continue into the November range. While small pullbacks are possible, the broader view favors continued upside, provided the index definitively breaks through resistance around 26,100.

Which sectors can an investor focus on now?

Several sectors remain positioned for outperformance.

PSU Banks continue to lead the way, with the PSU Bank Index at record highs and indicators such as RSI and MACD showing continued strength.

Oil & Gas has broken out of a long-term downtrend, supported by a bullish MACD crossover.

Real estate is consolidating above the major averages with a rising ADX, indicating an emerging uptrend. Manufacturing sector has recovered from the 100-day EMA with renewed buying interest, while Infrastructure has also shown a trendline break against Nifty, confirming relative strength.

Metals, despite mild profit booking, remain in a solid bullish zone above the major moving averages.

Overall, these sectors – PSU banks, oil and gas, real estate, manufacturing, infrastructure and metals – are expected to continue their leadership in the near term.

Are there stocks within these sectors?

Within the better performing sectors, certain stocks continue to exhibit strong technical and fundamental characteristics.

Among PSU Banks, Union Bank, Canara Bank and Bank of Baroda remain the top picks, supported by strong earnings growth and improving credit metrics.

In oil and gas, IOC, Oil India, BPCL and Chennai Petroleum offer value with robust refining margins and policy tailwinds.

Real estate names Sobha and Oberoi Realty show strength in volumes and prices. Apart from the above, BEL, Timken, Escorts, BHEL and Divi’s Labs indicate solid momentum and order visibility.

Among infrastructure plays, Larsen & Toubro and Bharat Forge stand out, while Jindal Steel and JSW Steel remain leaders in the Metals sector. These names could remain important outperformers in the short to medium term.

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