Moneycontrol Pro Market Outlook | Cautious sentiment prevails amid ongoing tech concerns

Markets face continued pressure.

Indian equity markets experienced a turbulent week as investor confidence crumbled amid a global technology stock rout. The selloff triggered a widespread flight to safety, leaving market breadth decidedly negative—declining stocks far outnumbered those posting gains.

The benchmark indices lost some of the previous week's gains, with the Nifty50 dropping 0.87 percent. Technology stocks bore the brunt of the damage in what became a global phenomenon, as fears mounted over artificial intelligence's looming impact on the traditional software sector. Weak international cues and persistent selling in IT names drove the sector deep into the red.

By week's end, the BSE Sensex had shed 953.64 points—a 1.14 percent decline—to settle at 82,626.76. The Nifty50 fared marginally better, losing 222.6 points, or 0.86 percent, to close at 25,471.10.

Sectoral performance told a tale of two markets. Technology stocks suffered the heaviest losses, with the IT index plunging more than 8 percent. Energy and Oil & Gas sectors each retreated around 2 percent, while FMCG stocks slipped nearly 2 percent. However, not all sectors succumbed to the gloom. The Media index surged 5 percent, while PSU Bank, Consumer Durables, and Defence indices each climbed roughly 3 percent, providing pockets of resilience amid the broader turmoil.

Market anxiety was palpable, reflected in the India VIX volatility index, which jumped 11.3 percent during the week.

The selloff wasn't confined to Indian shores. US markets also retreated as investors grappled with concerns about AI's disruptive potential across industries. The tech-heavy Nasdaq Composite suffered the steepest decline, falling 2.10 percent, while the S&P 500 Index and Dow Jones Industrial Average dropped 1.39 percent and 1.23 percent respectively.

Looking forward, markets face continued pressure. The Reserve Bank of India's newly introduced restrictions on funding to brokers and proprietary trading firms are expected to keep sentiment subdued in the near term, adding another layer of uncertainty to an already fragile market environment.

Bearishness continues

The Nifty declined 0.87 percent through the week, maintaining its negative trend. The RMI indicator remains in bearish territory below the zero line, though its momentum shows signs of slowing.

On the weekly chart, price is approaching the 40-week EMA. Meanwhile, the daily swing index has turned down after reaching overbought levels. The outlook remains bearish, with the index continuing to face selling pressure from higher levels.

Source: web.strike.money

FIIs maintain a heavily negative stance in Index Position Futures, with net positions at -1,47,573. However, technical analysis suggests this bearish extreme may be nearing exhaustion.

The chart reveals price has reached a critical short-term threshold, marked by the blue trendline and highlighted circles. This level carries historical significance—it has been tested nearly four times previously, triggering short-term corrections on each occasion.

With the indicator once again touching this established resistance zone along the extended trendline, conditions are ripe for a potential pullback or reversal from current levels.

Source: web.strike.money

The Daily average swing indicator, a mid-term measure, currently stands at 69.81. Just days ago, it entered overbought territory before reversing course from those elevated levels.

Historical patterns offer a cautionary tale. When the indicator has exhibited similar behaviour in the past, the index typically underwent corrections. This precedent suggests we may see some short-term weakness ahead, though close monitoring remains essential as the situation unfolds.

A key diffusion indicator—the percentage of stocks showing an RMI buy signal—has reached extreme overbought territory and is now rolling over from those elevated levels.

History provides context for what may lie ahead. When this indicator has peaked and turned down from such extremes in the past, the market typically experienced corrections or periods of weakness. A similar scenario appears to be unfolding now.

Source: web.strike.money

The put-call ratio, measured on a 14-day moving average, previously revealed a troubling disconnect- while the index was making higher highs, this indicator was forming lower highs—a classic bearish divergence.

That divergence has now been confirmed. The indicator has turned down and currently stands at 0.60, signalling a potential shift in momentum and warranting a cautious stance on the market.

Source: web.strike.money

Sector Rotation

Nifty 50 – The Benchmark Index ended lower, by -0.87% this week and closed at 25,471.10.

Leading Quadrant:

Nifty PSU Bank has seen a drastic shift from weakening to leading, with strong momentum. Similarly, Nifty PSE has changed from improving to leading, also with strong momentum. Apart from these, indices like Nifty MNC, Nifty Financial Services, Nifty Oil and Gas, and Nifty Bank are still in the leading quadrant, with strong momentum. In contrast, Nifty Private Bank shows a reduction in momentum. Nifty IT has seen a drastic downturn in momentum, and it will be interesting to track whether this sector shifts from leading to weakening or another quadrant.

Weakening Quadrant:

Nifty Auto has shown increased momentum compared to the previous week. Similarly, Nifty Infrastructure has had an interesting turnaround, moving from lagging to weakening, with a strong increase in momentum. This index will be particularly interesting to watch in the coming weeks.

Improving Quadrant:

On the lagging side, Nifty Realty is showing signs of improvement in momentum. Similarly, Nifty FMCG has seen a slight increase in momentum compared to the previous week.

Lagging Quadrant:

On the improving side, Nifty Consumer has made a drastic shift from lagging to improving, with strong momentum. Nifty Pharma has been consolidating between lagging and improving over the past few weeks, with slight momentum increasing but still showing some consolidation. Meanwhile, indices like Nifty Media, Nifty Consumer Durables and Nifty Energy continue to remain in the improving quadrant, with slight momentum increases as well.

Stocks to watch

Among the stocks expected to perform better during the week are SBI, LT, Eicher Motors, Ultra Cemco, TVS Motors, Astral, Torrent Pharma, MFSL, Voltas, KEI, Indus Tower, Jindal Steel, Lupin, JSW Steel and Union Bank.

Cheers,

Shishir Asthana