Last week, we prepared for a correction of up to 900 points from the previous week’s levels—keeping 23,171 as the resistance line on the upside and anticipating a drop toward 21,82 if 22,956 gave way. The market, which had told a story of continuous decline for the past 8 weeks, lived up to that anticipation by staging a massive sell-off, almost as if playing out its climax last week. From a high of 23,080 on Monday, the market tumbled to 22,217 by Thursday before registering a weekly close at 22,422. In just 4 days, it shed roughly 900 points, right in line with our expectation.
The two-decade high U.S. bond yields and elevated crude oil prices remained the primary drivers shaking the market over these past 8 weeks. Foreign Institutional Investors (FIIs) offloaded about ₹44,000 crores worth of equities last month. However, during the same period, Domestic Institutional Investors (DIIs) stepped in with purchases of approximately ₹76,000 crores. The surge in U.S. Treasury yields compresses global risk asset valuations, which is why foreign funds are pulling out of emerging markets like India. Another notable development last week was the rupee slipping toward the 96 mark despite heavy intervention by the Reserve Bank of India (RBI).
Globally, moderating U.S. job data reduces the probability of a near-term rate hike. Similarly, the Personal Consumption Expenditures (PCE) Price Index—the Fed’s preferred inflation gauge—released on September 30 showed headline PCE holding steady at 3.4%, which comes as a relief. Core PCE remained stable as well. Although it stays above the 2% target, it matched expectations, fostering hope that yields will cool off in the coming days. (Headline PCE includes all items such as food and energy, whereas core PCE excludes them.)
It is important to note that India’s current downturn stems from external factors. Domestically, conditions remain much stronger, implying that such a correction makes equities more attractive. High GDP growth, robust GST collections, and strong loan growth paint a bright picture for India’s domestic growth metrics. Looking at upcoming events, whether the RBI chooses to maintain or hike rates during its meeting from October 5 to 7 is crucial. While India was previously forced to follow U.S. rate hikes closely, what it decides to do this time remains key. Opinions are split: some expect a 0.25 percentage point hike on the current 5.25 repo rate, while others believe rates will be kept unchanged. Additionally, quarterly earnings reports are set to begin rolling out toward the end of this week, which will dictate near-term market movements.
Examining Nifty’s price action, the index successfully defended the crucial 21,182 level last week, bouncing back in the final hours from a low near 22,218 to close at 22,422. Moving forward, 22,182 remains the primary support level to watch on the downside. As long as it doesn’t close below this level, there is no need to lean into a bearish mindset. The next support to monitor is 21,964; if that is lost, a steep correction of over 900 points down to 21,042 could await the market.
On the upside, since the 22,182 level holds a high probability of staying intact, let’s review the key resistance levels to watch:
First, monitor 22,610; if crossed on a closing basis, attention shifts to 22,810.
Beyond that, keep an eye on 23,171.
Conquering and closing above these levels will open up the test of whether the index can clear 23,490.
Sector-wise, Auto and Realty slipped into weakness over the past two weeks, while Metals, Private Sector Banks, and Pharma continue to hold strong. Newly emerging pockets of strength include Banking, Public Sector Enterprises, IT, and the Services sector. Whether the upcoming RBI policy stance and Q2 corporate earnings can sustain a momentum rally leading up to Diwali remains the key question waiting to be answered in the days ahead.