Pointed out last week, even if the initial support of 23316 is breached, the major support zone between 23267 and 23070 is highly crucial, and the chances of it breaking are slim. On the upside, 23555 was seen as the resistance level. Although there were several steep downward moves and circumstances pushing the market lower last week, the 23070 support level stood remarkably strong alongside the bulls. The lowest level last week was 23116, and it closed at 23346. Closing well above the aforementioned major support level can certainly be seen as a positive sign. However, on a weekly closing basis, it is a serious concern that Nifty has closed lower for the sixth consecutive week. Let’s first look at the major developments from the past week.
The NSE India IPO that opened last week, worth ₹22,561 crores, is the largest IPO in history. NSE broke the previous record held by the LIC IPO in 2022, which was worth ₹21,008 crores. It can be assumed that this IPO was a primary reason for significantly reducing liquidity in the market. In particular, the selling pressure in the initial days of last week was likely driven in part by investors liquidating assets to raise funds to participate in this IPO. On September 16th, the US Fed increased interest rates by 25 basis points against the backdrop of rising inflation, which currently stands at 3.4%. Brent crude continued to stay above $100 last week. However, it is a relief that it is respecting the resistance levels on the higher side. As long as it does not cross the 111.25–116 resistance levels that we have been pointing out for the past two weeks, that relief will persist. Rising crude prices pose a major threat to India’s current account deficit and the value of the Rupee. Last week, despite inflation rising to 3.1%, the Bank of England decided to keep interest rates unchanged, whereas the Bank of Japan raised its interest rates. Over the past two decades, massive investments have flowed into emerging markets including India, and US markets (as well as AI stocks in countries like Taiwan and South Korea), funded by Yen loans taken at near-zero interest rates in Japan. With interest rates rising, global investment firms will be forced to repay many of these loans, which will rewrite many equations in the coming days. This phenomenon, known as the ‘Yen carry trade unwinding’, will be a headache moving forward. This has also been one of the reasons for the continuous outflow of foreign investment from India recently. The recent US Fed interest rate hike will prompt funds seeking risk-free returns to pivot. However, it is also true that such a risk had been anticipated for quite some time.
We are currently standing right in the middle of uncertainties like economic crises, inflation, geopolitical tensions, and interest rate hikes. Yet, it is both an irony and a reality that markets often attempt to surge during such crises. “Climbing the wall of worry” is an inherent trait of the market!
Looking at the major focal points in the coming days, the US Flash Purchasing Managers’ Index (PMI) data will be released on September 23rd. This will reveal how much the manufacturing and service sectors have contracted amidst higher interest rates. Volatility can be expected on September 24th due to the F&O expiry in India. Also on September 24th, the US jobless claims data will be released—a metric the US Federal Reserve monitors closely for its interest rate decisions. On September 25th, the US core PCE inflation data will come out; if this remains elevated, bond yields—which are already a concern—are likely to rise even further.
Examining the possibilities for Nifty’s moves in the coming week, on the upside, the first thing to watch is whether it manages to close above the 23398 level. The next key area to watch is the very crucial resistance zone of 23783. If it manages to close above this, it will be a clear indication that the market is preparing to “climb the wall of worry” as mentioned earlier. The 24278–24379 zone will be the subsequent resistance to monitor. Checking the downside possibilities, 23118 can be seen as the first support, followed by the previously mentioned 23079 as the next support. Closing below this could lead to a breakdown that tests the previous bottom support levels of 22182–21964.