Moneycontrol Pro Market Outlook | Nifty faces crucial test after eighth consecutive weekly decline

Indian equity markets extended their losing streak to the eighth consecutive week, marking the longest weekly decline in 25 years. In a holiday-shortened week, both benchmark indices recorded their steepest weekly fall in several months. Weak global and domestic cues, elevated crude prices amid renewed tensions in the Middle East, rising global bond yields, persistent foreign fund outflows and a weakening rupee added to the market's woes.

The Nifty 50 tumbled 718.55 points, or 3.10 percent, to settle at 22,421.95. The Nifty Midcap 100 index declined 3.5 percent during the week, while the Nifty Smallcap 100 index extended its losing streak to a fourth consecutive week, shedding 3.3 percent. The selloff eroded nearly ₹15 lakh crore from the combined market value of BSE-listed companies during the week.

Rupee came under pressure on Thursday and moved closer to its record low of 96.96.

All sectoral indices ended lower except Nifty IT, which gained 0.5 percent. Nifty Consumer Durables was the biggest loser, falling 6 percent, followed by Nifty Auto, which declined 5.8 percent. The Nifty Metal, FMCG and PSU Bank indices shed more than 4 percent each, while the Nifty Realty, Healthcare, Infra and Oil & Gas indices declined more than 3 percent each.

Foreign institutional investors accelerated their selling during the week, extending their selling streak to a sixth consecutive week by offloading Rs 34,966.07 crore.

However, despite the war, US indices finished the week mixed. The Nasdaq Composite and the S&P MidCap 400 Index advanced, while the Dow Jones Industrial Average and the S&P 500 Index declined.

However, the US bond markets were under pressure. Long-term yields climbed to multi-decade highs during the week.

Looking ahead to the coming week, markets are looking oversold after eight straight weekly losses. Nifty at 22,421.95 is at a crucial point, where the market could break down into a new, sharp sell-off, as we are witnessing a bearish head-and-shoulders pattern.

The data point to track will be crude oil prices, which will determine the market's mood. Any further flare-up in the Middle East, or an adverse turn in the US-Iran conflict, could push oil higher and hurt emerging markets like India.

Nifty closed the week at 22,421.95, down 3.11 percent on the weekly chart. The index has broken down from the rising wedge pattern marked in red and has now moved toward the key support zone marked by the yellow trendline, a level that has historically served as a strong floor for prices. Even so, the index continues to trade below its 40-week EMA, and the RMI indicator has produced a bearish crossover, suggesting weakness in the broader trend. Still, a positive close above this support zone could open the door to a near-term recovery.

The percentage of Nifty 50 stocks trading above their 20-day EMA, a short-term market breadth indicator, is flashing an oversold reading across the broader market. The signal indicates that many stocks now sit below their short-term moving averages, reflecting widespread weakness in the market.

The percentage of Nifty 50 stocks trading above their 50-day EMA, a medium-term market breadth indicator, is also flashing an oversold reading across the broader market. The signal indicates that a large number of stocks are now below their medium-term moving averages.

The percentage of Nifty 50 stocks trading above their 100-day EMA, a slightly longer-term market breadth indicator, is also showing an oversold reading across the broader market. The signal shows that a large number of stocks now sit below their longer-term moving average.

Lastly, the percentage of Nifty 50 stocks trading above their 200-day EMA, a long-term market breadth indicator, is also showing an oversold reading across the broader market. The signal shows that a large number of stocks now sit below their long-term moving average, which confirms that the weakness has spread across every time frame.

Sector Rotation

Nifty 50 – The Benchmark Index ended lower by -3.11 percent this week, closing at 22,421.95.

Weekly RRG:

Leading Quadrant: Nifty Media and Nifty Metals have recently entered from the weakening quadrant, showing improving momentum and signs of outperformance. Nifty IT remains in the leading quadrant, but momentum is slowing, indicating some moderation in relative performance. Nifty Auto and Nifty Consumer Durables are also showing reduced momentum. Nifty Consumer Durables is close to moving into the weakening quadrant, which could lead to further weakness in relative strength.

Weakening Quadrant: Nifty Pharma and Nifty Bank are close to moving back into the leading quadrant, indicating improved relative strength. Nifty Private Bank is also showing a turnaround in momentum, and if this continues, it could move towards the leading quadrant. Nifty Financial Services, Nifty MNC, and Nifty Realty remain in the weakening quadrant, with a steady decline in momentum, indicating continued moderation in relative performance.

Lagging Quadrant: Nifty Infrastructure, Nifty Energy, Nifty FMCG, and Nifty PSE continue to remain in the lagging quadrant, indicating relatively weaker performance. Momentum continues to increase steadily across these indices; however, overall relative performance remains weak.

Improving Quadrant: Nifty PSU Banks and Nifty Oil & Gas continue to remain in the improving quadrant. Nifty PSU Banks has shown strong improvement and is now close to entering the leading quadrant, indicating a steady improvement in relative performance. If this momentum sustains and the index moves into the leading quadrant, further improvement in relative strength can be expected.

Stocks to watch

Among the stocks expected to perform better during the week are Divi’s Lab, Aurobindo Pharma, SonaComs, Laurus Lab, and RBL Bank.

Cheers,