Index Outlook: Sensex, Nifty 50: Range-bound with a bearish bias

It was a volatile week for the Indian stock markets last week. Sensex, Nifty 50 attempted to rise at the beginning, but they failed. After a sharp mid-week fall, both the indices managed to recover some of the loss on Friday. The Nifty Bank index, on the other hand, remained subdued all through the week. The price action on the charts indicate that the benchmark indices lack strong buyers to take them up and sustain higher. That continues to keep the indices vulnerable for a fall. As such, we suggest to remain cautious at the moment rather than being overly bullish on the Indian benchmark indices

Among the sector, the BSE Oil & Gas and the BSE Healthcare indices outperformed last week. The indices were up 3.8 per cent and 3.39 per cent respectively. The BSE FMCG index, down 2.26 per cent, was beaten down the most of last week.

FPI flows

The foreign portfolio investors (FPIs) were net sellers on Indian equities last week. They sold about $617 million last week. For the month of February, there has been a net outflow of $370 million from the equity segment so far. The FPIs have pulled out about $3.75 billion from Indian equities so far this year. The Indian benchmark indices will struggle to see a strong rise as long as the FPIs continue to remain as net sellers.

Nifty 50 (21,782.50)

Nifty rose above the psychological 22,000-mark in the first half last week, but failed to sustain. It made a high of 22,053.30 on Wednesday and then fell sharply giving back all the gains. The index touched a low of 21,629.90 on Friday before closing the week at 21,782.50, down 0.33 per cent.

Short-term view: The outlook continues to remain mixed. The broad 21,200-22,150 range remains intact. The price action over the last couple of weeks shows the struggle for the Nifty to get a sustained rise above 22,000. That leaves the bias negative within the 21,200-22,150 range.

Immediate resistance is in the 21,800-21,850 region. As long as the Nifty stays below 21,850, the chances are high for it to fall towards 21,200 – the lower end of the range in a week or two. Intermediate supports are at 21,600 and 21,500. A break below 21,500 can trigger that fall to 21,200.

Nifty has to see a strong rise above 22,150 to gain momentum. In that case, a rise to 22,500-22,700 will come into the picture. On other hand, a break below 21,200 can drag the Nifty down to 20,700.

Graph Source: MetaStock

Medium-term view: Since the broader sideways range is intact, there is no major change in the medium-term outlook. We reiterate that 20,700-20,500 is an important support region. Nifty has to sustain above this support to keep alive the chances of seeing 23,300-23,500 on the upside. From a big picture, 23,300-23,500 is a very strong resistance zone that can cap the upside for now. So, a strong correction is likely to happen from there.

On the other hand, a fall below 20,500 will be bearish to see 20,000 and even 19,500 on the downside. However, such a fall will be a very good buying opportunity from a long-term perspective. So, as the Nifty falls to 20,000 and 19,500, we have to start looking at the market from the buy side rather than becoming overly bearish.

Nifty Bank (45,634.55)

Barring the short-lived rise to 46,181.20 on Thursday, the Nifty Bank index remained below 46,000 all through the week. It tumbled to a low of 44,859.15 on Friday before closing the week at 45,634.55, down 0.73 per cent.

Short-term view: The index has been stuck in a sideways range over the last three weeks. Resistance is at 47,100. Supports are at 44,200 and 43,800. So, 43,800 to 47,100 can be the broad trading range for some time. A breakout on either side of this range will then determine the next move.

A break above 47,100 will be bullish to see 48,000 and 49,000. On the other hand, a break below 43,800 will be bearish to see 43,400 on the downside.

Graph Source: MetaStock

Medium-term view: The broader picture is positive. Strong support is in the 43,600-43,400 region. A break and fall below 43,400 will be very difficult and will need a strong trigger. In the absence of any such trigger, the Nifty Bank index will remain bullish to see 49,500-50,000 in the coming months.

Sensex (71,595.49)

Sensex rose to a high of 72,559.21 initially last week and then fell sharply giving back all the gains. The index made a low of 71,200.31 before closing the week at 71,595.49, down 0.68 per cent.

Short-term view: The outlook is unclear. The index is poised in the middle of the 70,000-73,400 range. It can go either way from here. But looking at the price action on the daily chart, the chances are high for the Sensex to fall 70,000 from here in a week or two.

A breakout on either side of 70,000-73,400 will determine whether the Sensex will go up to 74,800-75,100 or fall to 69,500-69,000.

Graph Source: MetaStock

Medium-term view: Crucial support is in the 69,000-68,850 region which can be tested in the coming weeks. A break below it can take the Sensex down to 67,300-66,500 or even lower. On the other hand, a strong bounce from around 68,860 will be bullish for the Sensex to see 70,000 and higher levels again.

Trading range

Nifty 50: 21,200 - 22,150

Sensex: 70,000 - 73,400

Nifty Bank: 43,800 - 47,100

Dow Jones (38,671.69)

The Dow Jones Industrial Average remained stable, and range bound last week. It fell to a low of 38,220.40 initially, but then managed to bounce back and close the week on a flat note at 38,671.69.

Graph Source: MetaStock

Outlook: The near-term view remains bullish. Immediate support is at 38,500. Below that 38,100 and 37,900 are the next strong supports.

Some resistance is around 38,750. A decisive break above this resistance can take the Dow Jones up to 39,300-39,400 in the coming weeks.

As mentioned last week, the price action around 39,400 will need a close watch. A break above 39,400 will be bullish to see 40,400. But a reversal from 39,400 could trigger a sharp corrective fall towards 37,000 and even 36,000, going forward.