Meanwhile, foreign Institutional Investors (FIIs) continued their selling spree in August, offloading equities worth Rs 25,564 crore through the exchanges up to August 23. This took the total equity selling by FIIs this year up to that date to Rs 1,57,440 crore, according to market data.
With this, analyst Sudeep Shah, Vice President and Head of Technical & 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:
What is your overall view on the markets and where do you think Nifty is headed?
Last week, the benchmark index Nifty commenced trading on a robust note, buoyed by a series of encouraging macro and policy developments. The rally was primarily driven by S&P Global Ratings’ decision to upgrade India’s sovereign outlook, which bolstered investor confidence in the country’s economic resilience. Additionally, Prime Minister Narendra Modi’s announcement of next-generation GST reforms, expected to be rolled out by Diwali, added further momentum. These reforms aim to simplify the tax structure and reduce the burden on consumers and MSMEs, thereby supporting broader economic growth.
The bullish sentiment persisted through the week, propelling the index to a high of 25153 by Thursday. However, despite the strong upward move, Nifty struggled to decisively breach the 61.8% Fibonacci retracement level of the previous corrective phase (from 25669 to 24337). This technical resistance triggered profit booking on Friday, leading to the formation of a bearish candlestick with a pronounced upper shadow, a classic indication of selling pressure at elevated levels.On the daily chart, the index has formed an Evening Star candlestick pattern, which is typically viewed as a bearish reversal signal. This pattern, coupled with the rejection at a key Fibonacci level, suggests that the bulls may be losing grip, and a period of consolidation or a corrective move could be on the cards unless fresh positive triggers emerge. Most noteworthy, during this pullback rally, the RSI failed to cross the 60 mark.Going ahead, the zone of the 100-day EMA of the 24650-24600 level will act as important support for the index. While on the upside, the zone of 25050-25100 will act as a crucial hurdle for the index. Any sustainable move on either side will lead to a trending move in the index.
Any expectations from the FIIs based on the Cash and FII Long-Short data?
Despite a slight improvement in the FII long-short ratio—from 7.95% on August 13 to 10.70% on August 22, primarily due to some short covering—FIIs continue to hold significant short positions in index futures. Interestingly, the last time the long-short ratio fell below 10% was in March 2023, where it remained at these levels for three consecutive sessions. That period coincided with a market bottom, after which Nifty moved higher.
This time, however, the ratio stayed below 10% for as many as 14 trading sessions before inching back above the mark over the past two days. Notably, recent positive developments, such as the S&P Global Ratings upgrade and GST rationalisation, have failed to meaningfully shift FII sentiment. Instead, concerns around the US–India tariff situation, a strengthening dollar against the rupee, and the jitteriness surrounding Fed Chair Jerome Powell’s upcoming speech at the Jackson Hole symposium—which could shape the September monetary policy outlook—have kept FIIs in a cautious “wait-and-watch” mode.
Cash market flows mirror this sentiment. Since the beginning of August, FIIs have pulled out 25751 crore, following net outflows of 47667 crore in July. Over the past six weeks, FII activity has consistently reflected bearishness. Yet, despite this heavy selling, Nifty has corrected just 3.11% from its June 30 high of 25669. The resilience is largely due to strong domestic institutional investor (DII) support, with inflows of 66184 crore since August 1. Even in July, when FIIs sold 47667 crore, DIIs stepped in with purchases worth 60939 crore, cushioning the market from a deeper correction.
Historically, the week leading up to monthly expiry often witnesses sharp swings in the long-short ratio, especially on expiry day itself. Should FIIs begin to cover shorts and resume buying in the cash market, Nifty could quickly regain momentum.
What is your view on Bank Nifty?
Bank Nifty continued to lag behind the broader market indices last week, reflecting persistent weakness in banking stocks. After hitting a weekly high of 56156, the index witnessed a sharp decline of over 1000 points, eventually closing at 55150, down 0.35% for the week. On the weekly chart, this move resulted in the formation of a sizeable bearish candle, highlighting the dominance of sellers during the week.
The relative underperformance is clearly visible in the Bank Nifty/Nifty ratio chart, which has dropped to a 65-day low, underscoring the weakening strength of banking stocks compared to the broader market. Technically, the index is now trading below both its 20-day and 50-day exponential moving averages, with both averages trending downward — a sign of deteriorating short to medium-term momentum.
Adding to the bearish tone, the daily RSI is on the verge of slipping below the 40 mark, indicating weakening internal strength and increasing downside risk. Unless there is a strong reversal or supportive news flow, the index may remain under pressure in the near term.
Talking about crucial levels, the zone of 54900-54800 will act as immediate support for the index. Any sustainable move below the level of 54800 will lead to further correction in the index upto the level of 54300, followed by the 200-day EMA level of 53544. While on the upside, the zone of 55600-55700 will act as ian mportant hurdle for the index.
What is the view on the consumer durable sector now, with the PM’s announcement of a reduction in GST?
The Nifty Consumer Durable index has shown strong outperformance following the Prime Minister’s announcement on GST reduction, which is expected to boost demand in the sector. The index surged nearly 4% last week, forming a sizeable bullish candle on the weekly chart, indicating renewed investor interest.
Technically, the index has moved above its key moving averages on both daily and weekly timeframes, reinforcing the strength of the uptrend. The sentiment is further supported by improving momentum indicators, suggesting that the sector is likely to continue its outperformance in the short term, especially if the GST cut translates into improved consumer spending.
Is the IT sector regaining strength now?
The Nifty IT index showed early signs of recovery last week by closing above its 20-day EMA for the first time since July 2025, which is a positive technical development. However, despite this move, clear strength is still lacking.
The overall structure remains tentative, as momentum indicators have yet to confirm a strong bullish reversal, and the index continues to underperform relative to other sectors. A sustained move above the key resistance level (36000), supported by volume and improving RSI, would be needed to confirm a meaningful trend reversal.
Which other sectors are you focusing now?
Nifty Auto: The index has delivered a strong breakout from a 13-week consolidation range on the weekly chart, signalling renewed bullish momentum. The index has significantly outperformed the frontline indices, surging over 5% in the past week, and reaffirming its leadership within the broader market. This outperformance is further validated by the Nifty Auto/Nifty ratio chart, which has climbed to a 43-week high, indicating sustained relative strength in the auto space. Technically, the index is trading well above its key moving averages on both the daily and weekly timeframes, reflecting a strong underlying trend. Adding to the bullish setup, the weekly RSI has crossed above the 60 mark for the first time since October 2024, a sign of strengthening momentum and growing investor interest in the sector. Given these technical confirmations, Nifty Auto is well-positioned to continue its outperformance in the short term, barring any major market-wide disruptions.
Apart from this, Nifty Consumer Durable, Healthcare, Pharma, and India Tourism are likely to continue their outperformance.
On the other hand, Nifty CPSE, PSE, and Private Banks are likely to underperform the frontline indices.
Any well-placed stocks?
Technically, Apollo Tyre, Mphasis, Nykaa, RCF, Dixon, ABFRL and Poonawalla Fincorp are likely to continue their northward journey.
(Disclaimer: 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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