Despite a growth booster budget, is the market looking nervous ahead of state elections?

The Nifty50 retested 17000 levels in intraday trade on Tuesday but value buying near crucial support levels helped the index to close above 17100 towards the close of the trade.

The 50-share index has wiped out gains made in 2022 and turned negative. It closed at 17354 on December 31 and has fallen more than 6 per cent from the recent high of 18350 recorded on 18 January.

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On the global front, rise in crude oil prices, expectations of a steep rate hike by the US Fed as well as geopolitical concerns around Russia and Ukraine are likely to weigh on markets in the near term.

On the domestic front, the big overhang in front of markets was the Budget 2022 which turned out to be a growth booster one, and now all eyes are on the outcome of state elections especially UP.

“If we talk about domestic cues then the budget was good and earning momentum is strong but the important question: "Is the market looking nervous ahead of state elections?",” Santosh Meena, Head of Research, Swastika Investmart Ltd, said.

Shrikant Chouhan, Head of Equity Research (Retail) at Kotak Securities also added that post Budget, the focus will shift more towards results of upcoming state elections especially UP, global factors (Fed rate hike), macroeconomics, earnings and valuations.    

Polling in five states begins with Uttar Pradesh this week. Polls in UP will be held in seven phases, starting from 10 February, and the last phase of voting will be on 7 March.

The counting of votes for 403 Assembly seats in Uttar Pradesh will be conducted on 10 March. As per the Zee News Opinion Poll conducted on Friday, the BJP has been projected to cross the majority mark by winning 241-263 seats.

A majority in UP will lift market sentiment as it would ensure the smooth functioning of the reform process.

Technical Factors:

The Nifty50 took support near the crucial psychological support level of 17000 and then bounce back which is a positive sign for the bulls.

But, for the bulls to regain control, a close over 17750-17800 is required, suggest experts. The trend might be sideways in the near term but there will be stock-specific opportunities, suggest experts.

“If we talk about the short-term trend then it is a traders' market that is giving opportunity on both sides. Technically, Nifty has slipped below its 50-DMA which is not a good sign however 17000-16800 is a strong demand zone. On the upside, 17450-17500 will act as a strong resistance now,” says Meena of Swastika Investmart Ltd.

“If we talk about the investors then we are in a structural bull market where every dip and consolidation is a good buying opportunity and they should focus on economy-facing sectors like capital goods, real estate, infrastructure, power, corporate banks, auto, etc.,” he said.

If we look at the daily chart of Nifty we can see that Nifty has been making lower tops (18604, 18350, 17781) and higher bottoms (16410, 16836) which means a contraction.

“We know after a contraction comes the expansion. Though the undertone sentiment is bearish; however, unless there is a directional breakout on either side, we won't be able to see a secular (bullish or bearish) move in the market,” Rupak De, Senior Technical Analyst at LKP Securities, said.

“On the higher end, 17800 is a level above which strong positive momentum is expected; whereas, on the lower end, 16800 is a level to watch below which bears are likely to be at the helm,” he said.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)