The Indian stock market opened on a sluggish note Friday, with both the Nifty 50 and the Sensex declining as market sentiment was weighed down by foreign outflows and escalating tensions in the Middle East. Investors, rattled by the ongoing conflict in the region, adopted a cautious stance, triggering a broad-based selloff across sectors. As of 9:55 AM IST, the Sensex was nearly flat at 82,522.54, while the Nifty 50 was steady at 25,241.40 points.
Foreign Institutional Investors Drive Selloff
One of the major contributors to the market’s recent volatility has been the sustained selling by Foreign Institutional Investors (FIIs). According to Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the dramatic 2.1% decline in the Nifty 50 observed yesterday is primarily attributed to the heavy selling by FIIs rather than the Middle East conflict itself.
Over the past three days, FIIs have sold ₹30,614 crore in the cash market, indicating a significant retreat from Indian equities.
This continued selling pressure comes at a time when global markets are grappling with geopolitical uncertainty, particularly due to the ongoing Israel-Hamas war. Investors worldwide are recalibrating their portfolios in response to the potential economic repercussions of the conflict, adding to the challenges faced by the domestic markets.
Market Outlook: Bearish in the Short Term
Technical analysts are painting a rather bearish outlook for the Nifty 50 in the near term. Rajesh Palviya, Senior Vice President of Technical and Derivatives Research at Axis Securities, highlighted that the index recently broke through a key support level, signaling a potential trend reversal. The Nifty 50 hit an all-time high of 26,277 on September 27, 2024, but has since seen a sharp correction, losing over 1,000 points.
This price action violated the up-sloping trendline at 25,400 on a closing basis, confirming a short-term trend reversal. Palviya also pointed out that the Nifty closed below its 20-day Simple Moving Average (SMA) of 25,508, further solidifying the bearish sentiment. In the immediate future, analysts expect the index to find support around the 24,800-24,500 levels. On the upside, the “Bearish Gap” formed on October 3 between 25,739 and 25,639 will act as a resistance zone for any potential relief rally.
Q2 Results to Influence Market Direction
Amid the market’s downturn, all eyes are now on the upcoming Q2 earnings season, set to kick off next week. Investors are particularly keen on the performance of leading banks, which are expected to show signs of recovery following a challenging quarter. The results are likely to influence the market’s trajectory in the coming weeks, with the financial sector playing a pivotal role.
While the broader market remains under pressure, a few stocks have managed to buck the trend, drawing attention from analysts for their resilience and potential upside.
Stocks to Watch: Pharma, Chemicals, and Steel
Rajesh Palviya has highlighted three stocks as potential buys, despite the broader market weakness: Ajanta Pharma Ltd, Tata Chemicals Ltd, and JSW Steel Ltd. These stocks have displayed strong technical indicators, suggesting potential upside for investors.
Ajanta Pharma Ltd
Current Market Price (CMP): ₹3,340
Ajanta Pharma has been in a strong uptrend across multiple time frames, forming a series of higher tops and bottoms. The stock is trading comfortably above its 20, 50, 100, and 200-day SMAs, all of which are rising in tandem with the price. This confirms the bullish trend, while the daily, weekly, and monthly RSI readings are all in positive territory. Palviya recommends buying and holding the stock with an expected upside of ₹3,400-₹3,500, while the downside support is at ₹3,150-₹3,085.
Tata Chemicals Ltd
CMP: ₹1,131
Tata Chemicals has seen significant price gains in recent weeks, breaking out of a “Triangular” pattern at the ₹1,100 level on a closing basis. This breakout, accompanied by high trading volumes, signals increased market participation and momentum. The stock is trading well above its 20, 50, 100, and 200-day SMAs, reaffirming the bullish sentiment. Both daily and weekly Bollinger Bands suggest a buy signal, while RSI readings across all time frames indicate rising strength. The stock has an expected upside of ₹1,200-₹1,320, with downside support at ₹1,085-₹1,040.
JSW Steel Ltd
CMP: ₹1,040
JSW Steel has also been in a strong uptrend, recently hitting an all-time high of ₹1,060. The stock’s price action has formed a series of higher tops and bottoms, indicating bullish momentum. Like Ajanta Pharma and Tata Chemicals, JSW Steel is trading above its 20, 50, 100, and 200-day SMAs, which are all rising alongside the price. The daily, weekly, and monthly Bollinger Bands suggest continued buying pressure, while RSI readings are in positive territory. Investors are advised to accumulate the stock with an expected upside of ₹1,100-₹1,150, with downside support at ₹1,000-₹970.
Sector Performance: IT Stocks Shine
While the broader market struggles with volatility, the IT sector has emerged as a bright spot, with several stocks performing well despite the uncertainty. The resilience of IT companies in the face of global economic headwinds has attracted investor attention, and the sector’s strong fundamentals continue to support its positive outlook.
As markets navigate the challenging landscape shaped by geopolitical tensions and foreign outflows, investors are increasingly seeking refuge in defensive sectors like pharmaceuticals and IT, while selectively accumulating stocks in cyclical sectors like chemicals and steel. The coming weeks, particularly with the release of Q2 earnings, will provide further clarity on the market’s direction and the resilience of India’s economy amid global turbulence.
