In Charts: What Technicals Are Saying About Indian Markets

“Markets witnessed profit-taking last week and lost over two-and-a-half percent, mainly pressurised by rising border tension between India and China and weak global cues,” Ajit Mishra, vice president of research at Religare Broking, told BloombergQuint. “Besides, muted macroeconomic data, viz. PMI data fell for the sixth month in a row and GDP data contracted by 23.9%, further dented the sentiment.”

The S&P BSE Sensex and the Nifty 50 Index declined 2.8% and 2.7%, respectively, in the week ended Sept. 4—posting their first weekly loss in three. The broader markets too tracked the benchmark indices, with the Nifty Midcap and Smallcap Indexes falling 2.5% and 3.2%, respectively. Not a single sectoral index managed to end the week higher with banking stocks falling the most.

According to Milan Vaishnav, CMT, MSTA, technical analyst and founder of Gemstone Equity Research, the Nifty has resisted precisely at the lower trend line of the channel that it broke on its way down and has formed a bearish engulfing pattern on the weekly. “Its occurrence at these levels has added to the credibility of the resistance area,” he told BloombergQuint.

“The coming week may not see any runaway up moves, but we expect the markets to limit its downsides and attempt to gain some stability,” Vaishnav said. “The levels of 11,435 and 11,550 will stay as resistance points whereas supports come in at 11,250 and 11,035.”

As headline indices are expected to trade within a narrow range, technical analysts advise on following stock- and sector-specific approach, going into the next week.

The relative rotation graph, used to gauge relative strength of equities against a common benchmark and each other, suggests relative strength in metals and select Nifty 50 stocks.

Tata Steel Ltd., JSW Steel Ltd., Maruti Suzuki India Ltd. and Titan Co. Ltd. are set to relatively outperform the Nifty 50 index. “Tata Steel and JSW Steel are firmly placed in the leading quadrant and along with Maruti Suzuki appear to be steadily improving their relative momentum,” Vaishnav said. “Titan which is placed in the improving quadrant could continue its relative outperformance going forward.”.

On the other hand, Reliance Industries Ltd., HDFC Bank Ltd., HDFC Standard Life Insurance Co. Ltd. and Indian Oil Corp. Ltd. could show relative underperformance against the Nifty. “IOC and HDFC Bank have rotated negatively and moved back into the lagging quadrant indicating a sharp drop in their relative momentum,” he said. “Reliance Industries continues to move lower and has entered the weakening quadrant where it’s joined by HDFC Life.”

Key Insights

Even as the markets corrected sharply over the last week, technical analysts continue to remain bullish on equities as the liquidity driven risk-on setup remains unchanged. But while the benchmark indices had turned extremely overbought on the daily charts, the one index that analysts are focussing on at present is the Nifty junior.

“Following the action over the past week, the Index can be seen taking support at the lower end of its rising channel with additional support coming in the form of the 50-day moving average placed at 26,830,” said Kush Ghodasara CMT, Promoter at LuvKush Finserve.

“We expect the index to show relative outperformance over the coming weeks aided by the inherent strength of its constituents such as Avenue Supermarts Ltd., SBI Life Insurance Co. Ltd. and Info Edge India Ltd. among others,” he said. “A break above 28,026 next week will change the trend to strong third wave on positional basis and the lift index to new 52-week highs.”