F&O Talk: Nifty drops 1,000 pts in 8 days amid trade chaos.

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Benchmark indices Sensex and the Nifty 50 experienced sharp declines of 2.6% each last week. The Nifty fell below the critical level of 23,000 to close at 22,904. This downturn occurred amid a broad-based global sell-off, driven by U.S. President Trump’s tariff actions and rising concerns about a potential economic slowdown.

The broader market was similarly affected, with the Nifty Midcap 100 falling by 2% and the Nifty Smallcap 100 dropping 2.6%, indicating widespread investor caution. IT stocks encountered significant losses, plunging 9% due to concerns about a potential reduction in U.S. tech spending. The Nifty Metal index declined by 7.5%, weighed down by fears of escalating global trade tensions. Meanwhile, the auto and pharma sectors both recorded declines of 3%.

Sudeep Shah, Deputy Vice President and Head of Technical & Derivatives Research at SBI Securities, shared his insights with ET Markets regarding the prospects for Nifty and Bank Nifty in the upcoming week. He indicated that despite weak global cues and tariff-related concerns, the Indian market initially displayed resilience by holding key levels until a downturn occurred. His analysis highlighted a recent inability of the Nifty to sustain above its prior swing high, prompting a gradual increase in selling pressure. The Nifty fell by over 1,000 points from its recent high of 23,870 within eight trading sessions, slipping below both short- and long-term moving averages. This shift signals weakening momentum, with technical indicators pointing to a dominant bearish trend. Sector-wise, most indices are trending lower, except for private banks, select financial services, and FMCG.

A significant support level for Nifty is identified in the 22,400-22,350 range. Should it drop below 22,350, a further decline to approximately 21,900 in the short term could be expected. On the upside, the 20-day EMA zone of 23,100-23,120 represents a pivotal resistance level. In terms of the Bank Nifty, despite broader market declines, it has displayed relative strength, marking only a 0.12% drop. The index also stands firm above its short- and long-term moving averages, with bullish momentum indicators supporting further potential gains. Resistance for the Bank Nifty is noted between 52,000-52,100, while 50,800-50,700 is crucial support. A fall below 50,700 might lead to further correction down to 50,000.

The Nifty Midcap 100 and Nifty Smallcap 100 outperformed the primary indices until Thursday, but both saw a decline on Friday, characterized by a sharp correction. They have now receded below their 20- and 50-day EMA levels. Indicators suggest a bearish trend, potentially leading to consolidation with a bearish bias over the coming sessions. Investors are advised to avoid the mid and small cap spaces for now.

In the pharmaceutical sector, confusion persists, largely due to the tariff landscape. The Nifty Pharma index experienced a notable decline on Friday, reflecting broader concerns. Until policy clarity is achieved, a cautious approach to this sector is recommended.

Marico remains bullish, while certain metal stocks such as Hindalco, VEDL, Jindal Steel, Tata Motors, KEI, and LTIM are facing bearish trends. Both the IT and Auto sectors are under pressure amid fears of a U.S. economic slowdown and ongoing tariff impacts, with technical indicators suggesting further downside. Investors are advised to avoid fresh positions in these sectors and wait for signs of stability or trend reversal.

The sectors highlighted as currently underperforming include Nifty IT, Pharma, Healthcare, Automobile, Metal, Oil & Gas. Conversely, Nifty Private Bank, Financial Services, and FMCG are relatively outperforming the primary indices.

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