Nifty, Sensex decline as investors await budget, mega-cap earnings, Fed meet

In the near-term, expectations regarding the budget will influence the market.

Bulls gave up control over the Street on January 30 and the benchmark indices fell over one percent as investors chose caution ahead of the Interim Budget later this week. Selling in power and FMCG names dragged the markets down. However, buying in metal, realty and oil and gas stocks capped the losses.

The Sensex closed 801.67 points or 1.11 percent at 71,140, and the Nifty fell 215.50 points or 1 percent at 21,522. About 1,891 shares advanced, 1,781 declined, and 87 shares unchanged. In the broader market, while the BSE Midcap index fell 0.53 percent, the BSE Smallcap index outperformed the benchmark and ended 0.18 percent higher.

Sectorally, losses were led by the Nifty FMCG, Nifty Infra and the Nifty Pharma. The Nifty Bank and Nifty Energy, Nifty Auto and Nifty IT indices ended in the red. Gains were led by Nifty PSU Bank index with Nifty Metal.

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The Union Budget has long been a significant influencer in the Indian market, often synonymous with heightened market volatility.

"Investors seemed hesitant to make significant decisions ahead of several key events this week, including a slew of mega-cap Q3 earnings, economic data and the Fed's monetary policy announcement. While the Fed is widely expected to leave the interest rates unchanged, the investor will look for clues about the likelihood of rate cuts at upcoming meetings," said Avdhut Bagkar of StoxBox.

Strong DII and retail support and the consequent resilience of the market is forcing FIIs to reduce their selling. The Fed commentary will influence the US bond yields and consequently the FII strategy, according to VK Vijayakumar, chief investment strategist at Geojit Financial Services.

"Large-caps like RIL, Bharti Airtel, L&T and ICICI Bank have the strength to support the market," he said. "In the near-term, expectations regarding the budget will influence the market. The market doesn’t expect any major changes in taxation relating to the capital market. Therefore, any such proposal will have an impact on the market."

Technical View

Nifty exhibited volatility throughout the day, with a prevailing bearish trend. The daily chart indicates the formation of a dark cloud cover, implying a bearish outlook in the near term, said Rupak De, Senior Technical Analyst, LKP Securities.

"Support is situated at 21,500 on the lower end. A significant decline below this level could potentially initiate a correction in the market. Conversely, sustained trades above 21,500 might lead to an upward movement in the market," he said.

The Bank Nifty index has encountered persistent resistance around the 45,500 level over the last two days. To initiate a sustained upward movement towards 46000, the index needs to convincingly break through this resistance, which coincides with the highest open interest on the call side, said Kunal Shah, Senior Technical & Derivative Analyst at LKP Securities.

"The immediate support on the downside is situated at 45,000, and a breach below this level could intensify selling pressure, leading to a decline towards 44,700-44,500 levels," Shah added.

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