Last week, we noted that the 22182 level would serve as strong support and that there was no need to maintain a bearish mindset unless Nifty closed below it. On the upside, the 22610 – 22810 levels were viewed as resistance. Although Nifty reached 22776 in the early days of last week, it faced a decline on Wednesday and Thursday, touching 22180 at one point. However, on a closing basis, it managed to sustain the 22182 level and the immediate support of 22218. On Friday, it made a strong comeback and closed at 22520, which is 100 points above the previous week’s closing of 22422. Thus, Nifty, which had been closing lower for the past 8 weeks, finally found some “relief” this week.
Looking at the major developments of the past week, the Reserve Bank hiked interest rates for the first time since February 2023. Although the Monetary Policy Committee unanimously decided to raise the rate by 0.25% to 5.5%, two members voted to maintain a neutral stance regarding forward-looking measures to tighten liquidity. However, prominent market experts, including HSBC, have shifted to the view that there will be another rate hike in December. They believe this will be necessary to support the Rupee and curb the “imported inflation” caused by rising crude prices. This rate hike will put pressure on the auto, real estate, NBFC, and consumer finance sectors. Anticipating this, a price decline had already been eroding these sectors over the past two weeks. The curtain raised on India’s Q2 corporate earnings with the TCS results. TCS maintained its profit and revenue growth, injecting energy into IT sentiments. The weakening Rupee is also providing a tailwind for IT exports. In the coming days, results from Infosys, HCL, and Wipro are expected to provide further clarity on the health of global enterprise tech spending. Moving forward, daily price fluctuations can be expected based on the previous quarter’s performance of major companies. Although crude oil remains high, the US-Russia diesel agreement towards the end of the week might alter many equations in the coming days. The September CPI figures will be released on October 13, followed by the WPI figures on October 14. These are just as crucial as the upcoming IT quarterly results. A clearer picture of the likelihood of future rate hikes will emerge from these and the inflation figures over the next two months.
Analyzing the sectors, Pharma, Private Banks, and Small Caps continue their upward momentum. The Services, IT, Public Sector, and FMCG sectors are showing signs of starting a new uptrend from their previous negative trends. Metals, Realty, PSU Banks, Energy, and Auto are showing weakness, while Consumption, Commodities, and Infra continue to remain negative. The past week provided the first indications that Nifty has completed its correction and is preparing for a new rally. Being surrounded by all kinds of negative news is actually the perfect time for such a reversal! If true, the first signs of this should come from large-cap stocks. In the coming days, the key support levels to watch for Nifty remain at 22218-22180. If 22180 is broken, it will mark the beginning of the next downfall. Below that, the immediate support to watch will be 21743, followed by the major support level of 21040. For upside possibilities to open up, the first hurdle to cross is the 22728 level. Above this, overcoming the 23170 level will be the next major challenge for the bulls.