Nifty50 weekly fall at 2.5%, Sensex declines 2.4% - know what led to correction, outlook for next week

Indian equity markets ended in red on Friday registering fourth consecutive decline this week. Frontline indices S&P BSE Sensex and NSE Nifty50 crashed today, weighed down by a host of local and external factors. Sensex closed at 59,885.23, down by 980.93 points or 1.61 per cent while the broader market Nifty50 settled at 17,825.80, down 301.55 points or 1.66 per cent.

Over the week, while the 50-stock Nifty50 has decilned by 2.5 per cent, Sensex has fallen 2.4 per cent accoring to data sourced from Trendlyne.

So, what led to the sell-off? We decode some of the factors which led to the downfall:

1) Indian shares posted their worst performance in six months hit by US economic data as the country reported better than estimated GDP growth numbers from July through September despite sharp interest rate hikes being undertaken by the US Federal Reserve. This has sparked fears of further monetary tightening as inflation remains high in the world’s largest economy.

2) Covid-19:  Concerns of a new wave take root in China, US and Japan who have been reporting growth in number of virus infections. A Reuters report said that nearly 37 million people were infected on a single day in world’s most populous nation this week quoting a Bloomberg report.   

3) Markets were caught in frenzied selling as weak global cues and bearish external factors pushed both the key benchmark indices below the psychological levels, Amol Athawale, Deputy Vice President - Technical Research at Kotak Securities said. Better than expected US Q3 GDP numbers raised concerns that the Fed will go for more rate hikes to tame inflation, which further accentuated selling pressure in the markets, he added.

Globally markets remained volatile as it reacted to reported rise in covid cases in China and strong US GDP data, Shrikant Chouhan, Head of Equity Research (Retail) at Kotak Securities Ltd.

“Domestic equity markets corrected this week reacting to negative global cues. Sensex 30 and Nifty 50 indices corrected at 2 per cent this week, whereas the fall in the BSE midcap and NSE smallcap indices was much sharper. Most the sectors reported negative returns this week due to broader weakness in the markets. BSE Pharma index was the bright spot as it gave positive returns led by re-emergence of covid scare,” Chouhan added.

Bears have outmuscled the bulls as global markets are witnessing winding down with the approach of Christmas and New Year holidays. Today’s correction has been on account of selling pressure which generally remains towards the end of the year as international hedge funds close their books, market expert Anuj Gupta said. The IIFL Securities analyst expects a rebound in subsequent sessions as this is a running correction. He said that the long term trend remains positive.

Dissection on Technical Charts

Technically, after a long time the index closed below the 50 day SMA (Simple Moving Average) and also formed a long bearish candle on weekly charts which is broadly negative,  Athawale said.

The Nifty opened gap down and continued to drift lower throughout the day to close the day around the lowest point of the day, Jatin Gedia, Technical Research Analyst, Sharekhan by BNP Paribas said. On the daily charts, Nifty has breached and closed below the psychological level of 18,000 and the rising support trendline which indicates that the Nifty is firmly in the grip of Bears, Gedia added.

Sectoral Duds this week

Source: Trendlyne

Outlook:

“For traders, as long as the index is trading below 18000, the correction wave is likely to continue and below the same, the index could slip till 17600-17500,” he added.

“On the flip side, 18000 could act as sacrosanct resistance zone. The dismissal of 18000 could push the index till 50 day SMA or 18150-18200,” he further said.

On the weekly charts it has reached the 20 week moving average (17839) which can provide some relief during the next week however, it is likely to be short lived and overall short term trend has turned negative, Gedia said.

He expects Nifty to drift lower till 17560 which is the 61.82 per cent fibonacci retracement level of the rise from 16748 – 18889. In terms of levels, crucial support is placed at 17730 – 17700 and the immediate resistance stands at 17930 – 18000.

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