F&O Talk | Nifty cracks after new high: Is this the start of a deeper fall? Sudeep Shah answers

Markets saw a sharp weekly sell-off, dragged down by weak global cues and growing uncertainty. Selling pressure deepened in the latter half, keeping sentiment firmly negative. The Sensex dropped 2.55% to 83,576.24, while the Nifty fell 2.45% to 25,683.30, one of the steepest declines in recent months. Broader markets underperformed, highlighting a clear risk-off mood.

Global factors weighed heavily on sentiment, with concerns over sharply higher US tariffs on Indian exports and lingering uncertainty around India US trade ties fuelling risk aversion. Geopolitical tensions involving the US and Venezuela further dented confidence, while sustained FII selling, with net selling throughout the week, added to the pressure on equities.

With this, analyst Sudeep Shah, Vice President and Head of Technical and Derivatives Research at SBI Securities, interacted with ET Markets regarding the outlook for the Nifty and Bank Nifty, as well as an index strategy for the upcoming week. The following are the edited excerpts from his chat: Last week, the benchmark index Nifty scaled a fresh all-time high on Monday, only to reverse sharply thereafter, ending the week with a steep correction of nearly 2.5%, the sharpest weekly fall since September 2025. What stands out even more is that over the last four trading sessions, the index opened with a gap-down on every single day, signalling persistent selling pressure. Notably, the bulk of the damage unfolded in the final two sessions of the week, but was this just a pullback, or the start of something deeper?

This decline has technical significance, as Nifty has now confirmed a neckline breakdown of an Adam and Adam Double Top pattern. Adding to the concern, the index has slipped decisively below its 20-day and 50-day EMA, with the 50-day EMA, an important support that held firm on four occasions since October 2025, finally giving way. The index is now hovering near its 100-day EMA, while momentum indicators have turned visibly weak. The daily RSI has slipped below the 40 mark for the first time since September 2025 and continues to trend lower, a combination that rarely goes unnoticed by market participants.

This evolving chart structure points towards further bearish momentum in the near term. From a levels perspective, the 25,500 to 25,450 zone emerges as immediate support, and any sustainable breach below 25,450 could open the door for a sharper decline towards 25,200 in the short run. On the upside, recovery attempts are likely to face stiff resistance in the 25,900 to 25,950 zone.

The caution is not limited to the frontline index alone. Broader markets are also under pressure, with the Nifty Midcap 100 slipping below its 20-day and 50-day EMA, while the Nifty Smallcap 100 is trading below all its key moving averages. This broad-based weakness suggests that risk appetite is clearly fading, reinforcing the need for a defensive and selective approach in the near term.

The Nifty’s struggle near 26,300 reflects weak heavyweight participation, but several catalysts could reignite a breakout. Improving corporate earnings in Q3 and positive forecasts can bolster valuations. Secondly, monetary tailwinds from accommodative RBI views and global rate-cut hopes could lift liquidity and risk appetite. Thirdly, renewed foreign institutional inflows driven by global risk-on sentiment would add strong support. Fourthly, easing geopolitical tensions could improve risk appetite and reduce safe-haven flows. Lastly, the Union Budget, with market-friendly reforms or tax incentives, could further boost sentiment and help clear the 26,300 resistance.

Considering the current chart structure of frontline as well as broader market indices, staying cash-rich would be the better strategy for the next couple of trading sessions.

Last week, the banking benchmark index, Bank Nifty, managed to outperform the frontline indices despite closing lower by nearly 1.5%, compared to the sharper correction seen in broader markets. However, the weekly chart has thrown up a cautionary signal with the formation of a Dark Cloud Cover candlestick pattern, a classic indicator of a potential shift in sentiment from bullish to bearish.

Adding to the cautious undertone, the index slipped below its 20-day EMA, signalling short-term weakness. Momentum indicators are also turning soft. The daily RSI has moved below its 9-day average, and both are trending downward. The fast stochastic has crossed below the slow stochastic line, further reinforcing the view of limited upside in the near term.

Looking ahead, the zone of 58,700 to 58,600 will act as a critical support area, as the recent swing low is placed in this region. A sustained move below 58,600 could accelerate the decline towards 58,000, followed by 57,500 in the short term. On the upside, the 59,700 to 59,800 band will serve as a key hurdle, and only a decisive breakout above this zone can revive bullish momentum.

Trent’s slump this week reflects fundamental concerns. Shares fell nearly 9% after the company reported revenue growth of 17%, well below management guidance of 25% shared earlier. Concerns around slowing consumer demand despite continued store expansion also weighed on sentiment. Additionally, intensified competition from value fashion players and muted same-store sales dented confidence.

Technically, the stock has been moving in a lower high lower low formation since the high of 8,345 made on October 14, 2024. The stock has dropped nearly 52% since then and now trades below key moving averages. The ADX has dropped below 20 and the RSI has slipped into bearish momentum, reinforcing the bearish setup.

While IT is in focus with TCS kicking off Q3 earnings, both IT and Bank Nifty look well placed to outperform in January. Rising ratio lines in their respective IT Nifty and Bank Nifty Nifty charts indicate improving relative strength versus the benchmark.

Seasonality also supports IT. Over the last 21 years, the IT index has ended January in the green 14 times. In the one month leading up to the Budget, it has been the strongest performing sector, rising nine times with an average gain of 6.23%.

Beyond Q3 earnings, clarity on the India US trade deal, Union Budget announcements, FII flows, US rate expectations, and easing geopolitical tensions will be key triggers.

FIIs have withdrawn nearly Rs 1.84 lakh crore over the past six months, signalling subdued conviction amid trade delays, a stronger US dollar, and rupee weakness.

Defence, PSU banks, IT, autos, pharma, healthcare, and financial services are showing relative strength and could outperform if follow-through buying emerges.

Also Read | Mutual fund SIP stoppage ratio rises to 85% in December even as contributions hit record Rs 30,002 crore(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)