The Nifty extended losses on May 4 after the Reserve Bank of India in a surprise move raised the key repo rate as well as the cash reserve ratio (CRR).
Weak global cues amid Europe's new Russian oil sanctions and caution ahead of the Federal Reserve's interest rate decision later in the day also weighed on sentiment.
The Nifty closed 392 points, or 2.3 percent, lower at 16,677.6, the lowest closing level since March 15 and formed a Long Black Day pattern on the daily chart as the closing was much lower than the opening level.
The index can slip to 16,159 if the selling pressure continues, while 16,865 will act as a resistance, experts said.
"The Nifty50 witnessed a Long Black Day kind of formation as it tumbled a little higher than 2 percent. In this process, it breached, critical supports placed around 16,850 levels," Mazhar Mohammad, Founder & Chief Market Strategist at Chartviewindia said.
If the downward spiral continues, weakness shall eventually extend to 16,159, he said.
Also read: RBI’s rate hike shock sends markets spiralling lower
However, in between, there is a bullish gap placed between 16,447 and 16,418. "Any rally towards its 200-day exponential moving average (16,865) shall attract selling pressure and strength in the index will not resume unless it closes above 17,135 levels," Mohammad said.
For time being, it would be prudent to remain neutral on the long side, he said.
After a sharp correction, the options data indicated that the Nifty’s trading range for the coming sessions moved lower to 16,400-17,000 from 16,700-17,400.
On the options front, maximum Call open interest was seen at 17,000 strike followed by 17,500 strike, while maximum Put open interest was seen at 16,500 strike followed by 16,000 strike.
Marginal Call writing was seen at 17,000 strike then 17,200 strike, while Put writing was witnessed at 16,600 strike then 16,500 strike.
Also read: Gainers & Losers: 10 stocks that moved the most on May 4
The broader markets also traded lower, as the Nifty midcap 100 and smallcap 100 indices fell more than 2 percent each on weak market breadth. About six shares declined for every share advancing on the NSE.
The volatility moved closer to 22 levels after the RBI decision, indicating wild swings in the market in the coming sessions.
India VIX, which measures the expected volatility in the market, rose 7.86 percent to 21.88.
Weakness was seen in Voltas, Info Edge, Apollo Hospitals Enterprises, DLF, Ramco Cement, Piramal Enterprises, NALCO, Jubilant FoodWorks, Dr Lal PathLabs, Ashok Leyland, Bajaj Finance, Pidilite Industries, Bank of Baroda, Sun TV Network, Hindalco, Dixon Technologies, Canara Bank, Berger Paints, SRF, Glenmark Pharma, Titan, Divi’s Labs, Dr Reddy's Labs, Axis Bank, Maruti Suzuki and SBI," Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services, said.
However, positive setup was in in Britannia, Petronet LNG, Power Grid Corporation and NTPC, he added.
Also read: RBI's surprise rate hike wipes off Rs 6 lakh crore of investor wealth
Banking index
The Bank Nifty opened positive at 36,266 and moved higher up to 36,309 but failed to hold on to those gains and slipped nearly 1,200 points from the day's high.
The index closed with a loss of 899 points at 35,265 and formed a strong bearish candle on the daily scale.
"The supports have been shifted lower. Till it holds below 35,500 levels, the weakness could be seen towards 35,250 and 35,000, whereas resistances are placed at 35,750 and 36,000 levels," Taparia said.
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