Index Outlook: How Far Can Nifty 50, Sensex, Nifty Bank and Dow Jones Fall?

Nifty 50, Sensex and the Nifty Bank indices were beaten down badly last week. All the indices tumbled over 2 per cent. Our bullish view of the Nifty breaking above 19,850 and rising to 20,400 has gone wrong. Instead, the index has declined sharply breaking below the key support level of 19,400. Similarly, Sensex has also declined sharply below the support at 64,500, which we had expected to hold. This has proven our bullish view of the rise to 68,000 wrong.  

However, we have got the fall to 42,000 on the Nifty Bank index right last week. Although there was a strong recovery on Friday, resistances are ahead for the indices that can keep them under pressure to fall more. A strong follow-through rise breaking above the resistances is needed to ease the downside pressure. That looks less likely as seen from the charts. For now, the outlook is weak and more fall is on the cards. However, from a long-term perspective, the current fall would give a very good opportunity to enter the market.

All the sectoral indices were also knocked down last week. The BSE Realty index fell the most by 3.24 per cent. This was followed by the BSE Consumer Durables and the BSE Capital Goods indices, which were down 3.16 and 3.06 per cent respectively.

Sell-off continues

The foreign portfolio investors (FPIs) continue to sell Indian equities. They sold about $986 million in the equity segment last week. The FPIs have been selling over the last eight consecutive weeks. There has been an outflow of about $4.37 billion from the equity segment during this period. In October, the FPIs have pulled out about $2.45 billion. FPI selling will continue to keep the Sensex and Nifty under pressure.

Nifty (19,047.25)

Contrary to our expectation, Nifty has declined below the key support levels of 19,400 and 19,100. The index made a low of 18,837.85 on Thursday and has bounced back from there. It has closed the week at 19,047.25, down 2.53 per cent.

Short-term view: The outlook has turned bearish after the break below 19,400 last week. So, the rise to 20,400 that we have been expecting over the last few weeks is not happening now.

Immediate resistance is at 19,150-19,200. Above that, 19,400-19,500 is the next strong resistance region. Although a further rise from here cannot be ruled out, the upside can be capped at 19,500. The outlook will continue to remain weak. Nifty can fall to 18,700-18,600 first. A further break below 18,600 can drag it down to 18,300-18,200 in the coming weeks.

To bring back the bullishness, Nifty has to see a sustained rise above 19,500.

Medium-term view: The outlook has turned bearish. The rise to 21,500 that we have been expecting could get delayed now as there is more room to fall from here.

From a long-term perspective, the region between 18,200 and 18,000 is the next important support to watch. We expect the current fall to halt around 18,000. A fresh leg of rally, thereafter, might bring back the potential for the Nifty to target 21,500 in the coming months. A decisive break above 19,500 will clear the way for that.

So, for now, we will allow for a fall up to 18,000 and then a fresh leg of rally.

Sensex (63,782.80)

The crucial support at 64,500, which we had expected to hold, was broken last week. Sensex tumbled to a low of 63,092.98 and has managed to recover slightly from there. It has closed at 63,782.80, down 2.47 per cent for the week.

Short-term view: Outlook is negative. A corrective bounce to 64,000 or 64,500 is a possibility. But a rise beyond 64,500 is less likely. As long as the Sensex remains below 64,500 the chances are high for it to test 62,800 on the downside in the near term.

A further break below 62,800 can drag down to 62,300 in the coming weeks.

A decisive rise past 64,500 is necessarily needed to negate the above-mentioned fall 62,800 and 62,300.

Medium-term view: The strong break below 64,500 has opened doors for the Sensex to see more fall. Important support is at 62,000-61,800. This can be tested over the next one-two months. But thereafter, we can expect the Sensex to see a fresh rally targeting 66,000 and 68,000 on the upside.

As such, from a long-term perspective, the fall to 62,000-61,800 can be a good opportunity to enter the market.

Nifty Bank (42,782)

The fall to 42,000 almost happened last week. Nifty Bank index made a low of 42,105.40 and has risen back from there. It has closed the week at 42,782, down 2.15 per cent.

Short-term view: The support at 42,000 is holding for now. However, 44,000 will be a very crucial resistance to watch. Nifty Bank index has to rise above 44,000 to bring back the bullishness and rise to 44,500-45,000.

Failure to rise past 44,000 can keep the index under pressure to break 42,000 and fall to 41,000 and even lower.

Medium-term view: There is a double-top pattern visible on the chart. So, as long as the Nifty Bank index remains below 44,000, the outlook will remain bearish. The above mentioned break below 42,000 can drag the Nifty Bank index down to 40,500-40,000 over the next one-two months. Thereafter, a fresh leg of rise is possible.

Dow Jones (32,417.59)

As expected, the Dow Jones Industrial Average fell last week. Indeed, the index extended the fall well beyond breaking below the 32,850-32,700 supports. We had expected these supports to hold and produce a bounce. That view has gone wrong. The index has closed the week at 32,417.59, down 2.14 per cent.

Outlook: The view remains bearish. Key resistances are in the 32,800-33,000 region. The upside is likely to be capped at 33,000 now. The Dow Jones can fall to 32,000-31,800 – the next important support zone, this week. The price action, thereafter, will need a close watch to see if the index is bouncing back or not.

The US Federal Reserve meeting outcome is due on Wednesday. It will have to be seen if the central bank can provide some breather for the Dow Jones.