With Sensex, Nifty near critical supports, should market participants brace for volatility for now?

The Indian stock market has witnessed a sharp sell-off in the past month, driven by foreign institutional investor (FII) outflows, weak Q2 earnings, and adverse global cues. Both the Sensex and Nifty have experienced their steepest correction since the Covid crash of 2020.

Nifty50 has fallen by over 10 per cent from its peak, closing the week at 23,532.70. The Sensex mirrored the decline, closing at 78,165.3.

Market under pressure as FIIs continue selling spree

In November so far, FIIs have offloaded Indian equities worth Rs 29,533 crore, weighed down by weak corporate earnings and a surge in domestic inflation. On the other hand, domestic institutional investors (DIIs) have stepped in, making net purchases of Rs 26,522 crore during the same period, cushioning some of the downside.

Vinod Nair, Head of Research at Geojit Financial Services, remarked, “The domestic market is currently in a corrective terrain, with the main indices correcting around ten per cent from their peaks. The weak Q2 FY25 results and sustained outflows by foreign investors have kept market sentiment negative. Inflationary pressures and a strong US dollar have added to the volatility.”

Technical outlook: Key support and resistance levels

The Nifty closed just below its 200-day exponential moving average (DEMA) at 23,532. Nagaraj Shetti, Senior Technical Analyst at HDFC Securities, noted that the index formed a gravestone doji pattern, signalling a bearish sentiment. He pointed out, “Nifty is hovering near the key EMA level, suggesting an oversold region. A sustainable move below 23,500 could lead to further downside, dragging the index towards 23,200. Conversely, a bounce towards 23,700-23,750 may provide a sell-on-rise opportunity, given the overall negative trend.”

Rupak De, Senior Technical Analyst at LKP Securities, echoed this sentiment, stating, “The Nifty forming a gravestone doji near the 200 DEMA indicates a bearish outlook. There is short-term support at 23,450, while resistance is expected around 23,650. A break below the 200 DEMA could trigger additional selling pressure.”

Global and domestic factors influence market direction

On the global front, several key data releases are scheduled, including Eurozone inflation, Japan trade data, and US jobless claims, which may impact market sentiment. Domestically, investors will focus on the final phase of Q2 earnings and updates on India's inflation figures.

Looking ahead, analysts suggest that the market may remain in a consolidation phase next week. While a correction in premium valuations has already begun, the focus will be on H2 FY25 earnings, with expectations of a revival in rural demand and government spending providing potential upside.