Fed rate cut may fuel short-covering, Nifty set to test 25,500; analysts suggest buy-on-dips

Derivative signals point to further upside as Fed cut and expiry add momentum.

Indian markets look set to open higher on September 18, with Gift Nifty pointing to a strong start after the US Federal Reserve cut rates by 25 basis points, marking the beginning of its easing cycle. The move has come as a timely boost for traders on weekly expiry day of BSE contracts, with derivative signals pointing towards a continuation of the recent uptrend.

Ajit Mishra, SVP of research at Religare Broking said that while FIIs have largely stayed sellers across cash and derivatives, the Fed’s cut could change their stance.

“IT and banking, their preferred pockets, have been underperforming. If this acts as a trigger, we may see short covering and buying interest, which could further propel the index. Put writing for Nifty is seen at 25,200 and a tussle at 25,300 suggest that a gap-up may clear the way towards 25,500,” he noted.

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Chandan Taparia, Head Derivatives & Technicals, Wealth Management, Motilal Oswal Financial Services believes the base for Nifty is shifting higher.

“The index respected 25,150 and is now forming support at 25,300. Data suggests the move can stretch to 25,500–25,650. Volatility is cooling, with India VIX down to 10, almost half its peak this year. The FII long-short ratio has improved from 8 to 13 percent, signalling short covering is underway,” he said, advising traders to stick with longs on dips.

Raja Venkatraman, co-founder of Neotrader pointed out that the put-call ratio at 1 reflects a bullish setup, with max pain placed at 25,250.

“Any pullback towards 25,100–25,200 should be seen as a buying zone. Strong put writing is evident, and Bank Nifty looks even better placed with support near 56,000. But instead of chasing breakouts, it makes sense to add longs on dips,” he said.

With expiry-led swings and the Fed’s cut setting the tone, the market bias remains positive. Traders are advised to ride the bullish momentum, watch key resistance near 25,500, and use intraday declines as opportunities to position long.