In Charts: What Technicals Are Saying About Indian Markets
The CNX Nifty logo is displayed on a glass wall at the National Stock Exchange (NSE) in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg) 

In Charts: What Technicals Are Saying About Indian Markets

Indian equity markets failed to recover from a sharp mid-week correction to end lower for the first time in three weeks as weak global cues and fresh concerns over Covid-19 pandemic overshadowed positive domestic data and government’s efforts to boost liquidity.

“Global cues continued to remain weak as fresh Covid concerns, reinstatement of pandemic restrictions by European governments and fading hopes of any U.S. fiscal stimulus announcement before the presidential election weighed on market sentiment,” Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services Ltd., told BloombergQuint.

In Charts: What Technicals Are Saying About Indian Markets

India’s exports grew in September for the first time in seven months from a year earlier, indicating that an economic recovery is gaining momentum. The central government expanded its borrowing plan to help states cover tax-revenue shortfalls.

The S&P BSE Sensex and NSE Nifty closed 1.3% lower in the previous week. The broader markets remained mixed, with the Nifty Midcap and Nifty Smallcap declining 1.8% and 0.6%, respectively. All sectoral indices, barring metals, ended the week lower.

In Charts: What Technicals Are Saying About Indian Markets

“Structurally, the Nifty has taken a breather after witnessing faster pace of retracement. We believe ongoing consolidation has helped daily stochastic oscillator to cool-off overbought situation (currently placed at 32 compared to last Friday’s reading of 93). This makes us believe, ongoing corrective phase would find its feet around 11500,” Dharmesh Shah, head-technical at ICICI Direct, said. “Going ahead, we expect the index to consolidate in the broad range of 11,500-12,000 points with a stock-specific action amid progression of Q2 FY21 result season. We expect strong buying demand to emerge in the vicinity of 11,450-11,550 and therefore any dip from hereon should not be construed as negative, instead it should be capitalised on as an incremental buying opportunity.”

Ambuja Cements Ltd., Grasim Industries Ltd., HDFC Bank Ltd. and Tata Consultancy Services Ltd. could relatively outperform the Nifty 500 index. “HDFC Bank has rotated positively and moved into the improving quadrant,” said Milan Vaishnav, CMT, MSTA, technical analyst and founder of Gemstone Equity Research. “Similarly, Grasim remains firmly placed in the leading quadrant along with TCS and Ambuja Cements also seen advancing steadily.”

In Charts: What Technicals Are Saying About Indian Markets

On the other hand, Bajaj Holdings & Investment Ltd., Bosch Ltd., ICICI Prudential Life Insurance Co. and Torrent Pharmaceuticals Ltd. could show relatively underperform against the broader markets. “Torrent Pharma has rotated into the lagging quadrant following a sharp drop in its relative momentum. It is joined by ICICI Prudential and Bajaj Holdings, which continue to lose their relative strength against the Nifty 500 and languish further lower,” Vaishnav said. “Also, Bosch is seen rotating negatively inside the weakening quadrant.”

In Charts: What Technicals Are Saying About Indian Markets

Hitting The Snooze Button

Indian equity markets have gained in five out of the last seven months since the pandemic-fuelled selloff in March saw Indian stocks hit their lowest since April 2016. The sharp recovery has seen the Nifty advance as much as 60% and cross a key psychological mark of 12,000 last week.

However, since coming less than 2% of turning positive for the calendar year, the markets fell sharply on Thursday and could be set for a period of consolidation before its next move higher, according to Tom Bruni, CMT of All Star Charts. “The trend in Indian equities remains to the upside over the long-term,” he said. “In the short/intermediate-term, the trend is likely to remain sideways and messy at best, as exhibited by the failed breakout attempts, bearish momentum divergences, and flat 200-day moving averages seen in all of the major nifty indices.”

In Charts: What Technicals Are Saying About Indian Markets

Although the markets are heading for more choppiness ahead in the short/intermediate term, Bruni says they continue to be bullish on equities from a longer-term perspective. “Our equally-weighted index of the largest 10 stocks in the Nifty 500, which comprise 43% of the Nifty, remains in an uptrend,” he said. “The best players on the team tend to score a lot of the points, so if these stocks are doing well it's hard for the market to fall apart completely.”

In Charts: What Technicals Are Saying About Indian Markets

Bruni also suggested watching out for the Nifty 50 versus the Nifty Small Cap 100 chart. “Small cap outperformance is a sign of improving risk appetite and a broadening out of participation in the ‘market of stocks’ we call the ‘stock market’. Despite the weakness over the last couple weeks, the long-term trend continues to point towards outperformance from the small/mid cap segments of the market.”

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