After back-to-back correction, the setup for Nifty has turned relatively cautious, with the index slipping below its 20DMA for the first time in the past few sessions. The 50-stock index is now trading below the key support level of 25,500, suggesting a weak near-term bias.
Indian markets will look for fresh triggers with the earnings season ended this week.
With this, analyst Sudeep Shah, Vice President and Head of Technical & Derivatives Research at SBI Securities, interacted with ETMarkets 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:
Q: Nifty closed 0.8% lower this week largely hit by the debacle in IT stocks. What are the cues for traders and investors for next week’s trade?
Last week, the benchmark index Nifty once again failed to sustain above the psychologically 26,000 mark, triggering a sharp bout of profit booking. After touching a high of 26,009, the index corrected nearly 550 points in just the final two trading sessions of the week — a swift move that signals supply emerging at higher levels. While the fall may appear routine on the surface, the underlying drivers of this correction tell a far more compelling story.The major drag during this phase came from the Nifty IT index, which plunged over 8% during the last week and is now down over 14% month-to-date, marking one of its sharpest recent declines. The sell-off was largely triggered by rising concerns over the rapid expansion of AI-driven start-ups, which are increasingly seen as disruptive to traditional IT service companies. The speed and intensity of the decline suggest that this may not be a simple pullback on the downside and that raises an important question about whether the worst is already priced in.From a technical perspective, the IT pack continues to flash strong warning signals. All the constituents of the Nifty IT index are trading below their key moving averages, firmly placed in a falling trajectory. Momentum indicators remain entrenched in bearish territory, with no visible signs of reversal. In such a setup, attempting bottom fishing could prove premature — unless the charts begin to tell a different story in the coming sessions.Coming back to Nifty, it has now slipped below its 20-day, 50-day and 100-day EMAs, indicating a clear deterioration in short and medium-term trend strength. More importantly, both the 20-day and 50-day EMAs have started to slope downward — a subtle yet powerful bearish signal. Adding to the caution, the daily RSI failed to reclaim the 60 mark during the recent pullback and has now slipped below its 9-day average, hinting that upside momentum may remain capped — at least for now.
Going ahead, the 25,350–25,300 zone is likely to act as immediate support for the index. A sustained move below 25,300 could accelerate the correction towards 25100, followed by the crucial 24,900 mark. On the upside, the 50-day EMA zone of 25,650–25,700 level stands as a formidable hurdle.
Q: What are important Nifty and Bank Nifty levels for next week’s trade?
Going ahead, for Nifty, the 25,350–25,300 zone is likely to act as immediate support for the index. A sustained move below 25,300 could accelerate the correction towards 25,100, followed by the crucial 24900 mark. On the upside, the 50-day EMA zone of 25,650–25,700 level stands as a formidable hurdle.
For Bank Nifty, the 20 day EMA zone of 60000–59900 will serve as the immediate support area. A sustained move below 59900 may trigger further downside towards the 50 day EMA, currently placed at 59467. On the upside, the 60600–60700 band is expected to act as a crucial hurdle, and only a decisive close above this range may pave the way for a fresh up-move.
Q: The view on IT stocks is mostly bearish though some analysts are taking a contra view on the sector, arguing in favour of long term promise and favourable-risk reward after the extended correction. Data suggests not a single stock has given positive returns over a two-year period. In light of this, what will be your advice to investors?Nifty IT witnessed a sharp sell-off last week, tumbling more than 8%, and is now down over 14% month to date, marking one of its steepest recent declines. The index has also slipped below its key support zones, signalling a clear deterioration in trend strength. With moving averages turning lower and momentum indicators firmly in bearish territory, the overall structure suggests that selling pressure may persist in the near term.
All the constituents of the Nifty IT index are trading below their key moving averages, firmly placed in a falling trajectory. Momentum indicators remain entrenched in bearish territory, with no visible signs of reversal. In such a setup, attempting bottom fishing could prove premature — unless the charts begin to tell a different story in the coming sessions.
Q: PSU Bank stocks appear to be a much more safe option as there is no direct link of the trade deal with the sector. What is your assessment and do you have stock recommendations?The PSU Bank index cracked nearly 6% on the budget day and slipped below its 50-day EMA, but the subsequent recovery has been very strong, with the index rebounding sharply and marking a fresh all-time high near 9295 on 12th Feb. Over the last one year, it has been the best performing index with gains of nearly 53%, which clearly highlights sustained sector leadership.
Technically, the index continues to trade above key short- and long-term moving averages, keeping the broader trend bullish. The PSU Bank / Nifty ratio chart has also hit a new high and remains in a rising trajectory, indicating continued relative outperformance versus the broader market. The 8970–8950 zone remains a crucial support zone. As long as the index holds above this area, the bullish trend structure is likely to remain intact.
At the stock level, Indian Bank and Union Bank of India are both consolidating in a defined range since mid-January after a strong prior upward move, suggesting a healthy pause. This kind of time correction typically sets up the next leg of the trend. A strong follow-through move and a decisive breakout above their respective consolidation ranges can lead to continuation of the upmove in both stocks.
Q: India VIX was up 11% this week which brings opportunity for day traders in cash and derivatives market. How can traders utilize this?
Since hitting 16.11 on the budget day, India VIX cooled nearly 35% over the next 10 sessions in line with the usual post-budget volatility drop, but historically volatility tends to rise again in the following weeks — in the last 15 budgets, VIX closed negative immediately after the event in 11 cases (avg −8.82%), yet turned positive in 8 of the following one-month periods with an average rise of 17%, and the current pattern looks similar.
For traders, a rising VIX environment means bigger intraday ranges and faster price swings, so cash market day traders can focus on high-beta leaders and breakout/breakdown setups with smaller position sizing and quicker profit booking, while derivatives traders should avoid large naked positions due to higher premium risk and instead prefer defined-risk structures like debit spreads (bull call or bear put spreads) and hedged directional trades, which allow participation in movement while controlling downside if volatility expands further.
Q: Which sectors or themes will be in your radar next week?
Nifty Consumer Durables, Nifty Auto, Nifty Infrastructure, Nifty Manufacturing and Nifty Financial Services will be on the radar next week as they are currently the strongest pockets on the charts and are positioned in the leading quadrant of the Relative Rotation Graph (RRG), indicating superior relative strength along with momentum.
Consumer Durables has staged a sharp pullback from the 33383 lows showing strong demand at lower levels, while Auto and Manufacturing have rebounded decisively from their 200-day EMA and moved up swiftly, signaling trend support and continuation potential. Infrastructure is showing clear relative outperformance with the Infra/Nifty ratio chart giving a downward sloping trendline breakout followed by solid follow-through and Financial Services continues to outperform with its ratio line versus Nifty trending higher, together suggesting leadership is likely to remain with these themes if the broader market remains stable.
Q: SCI, Kirloskar Oil and Engineers India were big gainers this week while Firstsource, eClerx and Coforge, top losers. What should investors do with them?
Post results, Shipping Corporation of India saw a sharp gap-up and strong follow-through but is currently hovering near the earlier swing high zone of 280–282, which is acting as a supply area — price behaviour around this band will be important to judge whether momentum expands or the stock spends more time consolidating.
Kirloskar Oil Engines continues to show a higher-high higher-low structure and trades above key moving averages after a strong rebound since late January, suggesting trend strength remains visible as long as it holds above its nearby support band of 1330–1320.
On the weaker side, Firstsource Solutions has corrected sharply and slipped below the 275–270 support zone, which may now behave as an overhead resistance area, so price acceptance back above or rejection near this band becomes the key monitorable.
eClerx Services has broken an upward sloping trendline and its 200-day EMA, indicating loss of medium-term structure, with 3950 acting as an important reference level for trend assessment.
Coforge has also seen a double-digit weekly correction amid broader IT sector pressure linked to AI disruption headlines, so from a tactical standpoint the space may be better approached after signs of stabilization and base formation rather than during active weakness.
(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)
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