Moneycontrol Pro Market Outlook | Bloodbath in broader Indian markets

The broader market is experiencing even more severe losses.

Dear Reader,

Despite being in an oversold condition, Indian markets continue to decline. The benchmark index has dropped by nearly 16 percent, but the broader market is experiencing even more severe losses. In the NSE 500 index, 124 companies have seen their stock prices fall between 20 percent and 30 percent, 147 companies have lost between 30 percent and 40 percent, 93 companies are down by 40 percent to 50 percent, and 22 companies are trading at less than half of their peak value.

During the week, the Nifty declined by 2.94 percent, while the Mid-cap Index decreased by 4.4 percent and the Small-cap Index dropped by 6 percent. For February, the Nifty fell by 5.5 percent, mid-caps lost 10.4 percent and small caps decreased by 13.7 percent.

During the week, all sectoral indices closed in the red. The IT index declined nearly eight percent, while the Media index fell seven percent. Additionally, the Realty, PSU Banks, and Energy indices each dropped over five percent.

Foreign Institutional Investors (FIIs) continued their selling trend in the market, with a total of Rs 22,011.38 crore sold during the week. This brings the total for the month to Rs 58,988 crore and the total for the calendar year 2025 to Rs 1.46 lakh crore.

Global equity markets are exhibiting signs of fatigue, with most US indices declining for the second consecutive week. However, the Dow Jones managed to close marginally higher. The Nasdaq experienced its worst weekly closing since September, largely due to a significant drop of 8.48 percent in NVIDIA, which impacted the performance of the "Magnificent Seven" stocks.

Concerns over tariffs continued negatively impacting equities as President Donald Trump confirmed plans to impose new tariffs on several trading partners by March 4.

European markets were mostly flat, with the STOXX Europe 600 Index closing 0.60 percent higher, marking its longest streak of weekly gains since August 2012. During the week, the DAX increased by 1.18 percent, Italy's FTSE MIB rose by 0.61 percent, and the UK's FTSE gained 1.74 percent. However, the CAC 40 declined by 0.53 percent.

Japan's Nikkei 225 Index experienced a significant drop of 4.18 percent, as domestic stocks related to chips and artificial intelligence followed the decline seen in their US counterparts. Throughout the week, the yen weakened further, trading close to the psychological level of 150 against the dollar.

Chinese stocks fell after Trump announced a plan to increase tariffs on China by an additional 10 percent. The Hang Seng Index also dropped by 2.28 percent during the week.

A likely medium-term bottom formation

The Nifty index continued to decline this week, and it has barely seen any pullback despite many indicators pointing toward oversold zone conditions. The Nifty index is approaching its important medium support level of 21800. Seasonally, January to March is a weak period for markets, but in the past few years, major bottoms have occurred in March. The confluence of seasonality, the medium-term support line, and many short to medium-term sentiment indicators’ extreme oversold readings hint towards capitulation in the market and a potential reversal sooner or later. Breaking and sustaining above 22550 can bring back bulls in the picture.

The market-wide 40-day Advance/Decline (A/D) ratio going below the second oversold line indicates very poor breadth in the market and extreme pessimism amongst the market participants. The prolonged correction that ended in March 2022 had a similar reading as we now see. Eventually, the market bottomed out and started its medium-term upmove. It was only in COVID-19, a black swan event, that the reading went to extremely low levels before the Nifty index finally bottomed out.

Source: web.strike.money

Since June 2022, there have been five occasions where FII’s Net short position in the index future (indicator at the top) and Net long percent in the index future (indicator at the bottom) were between the first and second line at the bottom and on each of occasion, the Nifty index formed a major bottom and started its next leg of up move. This is the sixth time in the past couple of years that the FII’s Net short in the index futures is extreme on the downside. In fact, this time, the absolute number (1,88,591 contracts) is near its record short levels, and the Net long position of 15 percent is also below the second line on the downside, indicating extreme pessimism. Moving above the falling white support line of 22550 can lead to a short-covering rally and result in a medium-term bottom. However, until the Nifty index is below 22550, any pullback attempt will likely face selling pressure. The medium-term trendline support is around 21800.

Source: web.strike.money

The percentage of stocks trading above 200DMA in the Nifty 500 index has now fallen to single digits. When we look at the last 10 years of data, a single-digit reading was only seen when we saw an outbreak of COVID, where this reading went to as low as 5 percent. Otherwise, the bottom in the Nifty 500 index occurred when the reading of this indicator was between 10-20 percent. Unlike the Nifty 50 index, the Nifty 500 index is almost back to its election-day low. Any attempt at a recovery should be closely watched. If the reading of this indicator starts improving and crosses above 20 percent and the Nifty 500 index stops making lower lows, then it will be an indication that the worst is over and there is a possibility of a medium-term bottom formation.

Source: web.strike.money

The market is firmly in a bear grip, and the momentum is clearly with them at this point. However, one needs to remember that the Nifty index is approaching a major medium-term support level of around 21800. The only time these oversold readings won't matter and the Nifty index will keep falling is if there is a black swan event like we saw in 2020. If this is a healthy medium-term correction, then many of the above indicators hint towards extreme pessimism amongst market participants, which typically results in a major medium-term bottom once the index stops making lower lows.

Source: web.strike.money

Sector Rotation

The benchmark Index - Nifty 50 closed 2.94 percent lower at 22124.70 this week.

On the weekly Relative Rotation Graph (RRG), the Nifty Infrastructure index has moved back into the Lagging quadrant from the Improving quadrant. This transition suggests a weakness in Nifty Infrastructure. Similarly, the Nifty Consumer Durables index has also entered the Lagging quadrant from the Weakening quadrant, indicating a similar weakness.

Weakening Quadrant: Nifty IT and Nifty Pharma are moving towards the Lagging quadrant as they lose strength and momentum.

In the Weakening quadrant, Nifty Bank and Nifty Financial Services have turned up and are headed towards the Leading Quadrant. These sectors are stronger and could be watched in the coming weeks.

Lagging Quadrant: Nifty Realty, Nifty Media, and Nifty PSU Bank have extended their move further south in this quadrant due to weak Relative Strength and momentum.

Nifty Energy & Nifty Metal are headed North as they struggle to find strength.

Improving Quadrant: Nifty Oil & Gas continued to head eastwards to the Leading quadrant and may soon start performing in line with the Benchmark.

Nifty Auto and Nifty FMCG turned southwards towards the Lagging quadrant, which means they are not able to keep up the momentum and hence fail to outperform the Benchmark.

Leading Quadrant: Nifty Private Bank is the only sector in this quadrant headed North. With strong Relative Strength and momentum, this sector should be on the Bullish radar if Nifty bounces back next week.

Source: web.strike.money

Weakening Quadrant: None of the Sectorial Indices are in this quadrant.

Lagging Quadrant: Nifty Media, Nifty Pharma & Nifty IT are headed South, indicating that these are highly Under-performers. Nifty FMCG & Nifty PSU Banks are headed north, indicating some gain in momentum and that they could get into the Improving quadrant. Nifty Auto is holding on to its momentum but is a relatively under-performer.

Improving Quadrant: Nifty Realty, Nifty Consumer Durables, Nifty Oil & Gas, Nifty Energy, and Nifty Infrastructure have gained momentum and could enter the Leading Quadrant. We should monitor these sectors in case Nifty rebounds in the short term.

Leading Quadrant: Nifty Metal & Nifty Financial Services are headed East, indicating their out-performance. Nifty Private Bank is moving South as it loses momentum. Nifty Bank had almost entered the weakening quadrant, but it turned Up on the last trading day, indicating strength.

Stocks to watch

Among the stocks expected to perform better during the week are Kotak Bank, UPL, SBI Card, Bajaj Finance and Abbot India.

Among the stocks that can witness further weakness are Titan, Godrej Consumer, Hindustan Unilever, Dabur, IIFL, ONGC, Havells, Godrej Property and Deepak Nitrite.

Cheers, 

Shishir Asthana