Nifty signals springboard for next rally: Sudeep Shah

After giving a stellar return last week, the Indian equity market lost steam and ended the week on a negative note with Nifty 50 and Sensex seeing a drop of 0.7% each. The broader markets performed relatively well with the BSE Midcap index losing 0.3% while the smallcap index gained 0.9% WoW.

The Nifty 50 and the 30-stock BSE Sensex closed with gains of nearly 1% on the day. The Nifty 50 rose by 243.45 points to settle at 24,853.15, while the Sensex advanced 769 points to finish at 81,721.

On the macroeconomic front, US deficit concerns heightened during the week as the auction of $16 bn of 20-year bonds witnessed a tepid response, developing term-premium risk (risk related to additional yield demanded by investors for holding long-term bonds) among the investors.

With this, analyst Sudeep Shah, Deputy Vice President and Head of Technical & Derivatives Research, SBI Securities ,

interacted with ET Markets regarding the outlook on Nifty and Bank Nifty for the upcoming week. The following are the edited excerpts from his chat:

How does Nifty look with all the volatility that is being seen?


"In a rising market, the 20-day EMA isn’t a floor—it’s a springboard." The recent price action perfectly illustrates that principle. After a sharp upside rally in the previous week, the benchmark index, Nifty, witnessed a much-needed breather as the index underwent a healthy correction. This pullback found support near the 20-day EMA, followed by a smart rebound, reaffirming its role as a key springboard in the ongoing uptrend.

Notably, this behaviour wasn’t isolated. A majority of frontline indices also bounced from their respective 20-day EMAs, highlighting that the broader market is still well-aligned with the primary bullish structure. As long as Nifty is trading above this dynamic support, the trend remains upward, and any dip should be viewed as a potential buying opportunity rather than a sign of weakness.

Extending this view, the current chart structure suggests that the index is well-positioned to maintain its northward trajectory in the coming sessions. Within this context, Bank Nifty stands out as a likely outperformer in the short term, as it edges closer to a breakout from its month-long consolidation. Strengthening this outlook, heavyweight banking names are also nearing breakout levels, which could collectively act as a catalyst for a strong upward move.

In terms of key levels, the zone of 24,950–25,000 will act as an immediate resistance for Nifty. A decisive close above 25,000 could unlock further upside towards 25,300 and eventually 25,500 in the short term. On the downside, the 20-day EMA zone of 24,550–24,500 remains a crucial support, and any weakness toward this zone is likely to attract buying interest.

What’s the current view on Bank Nifty like?


The Banking benchmark index, Bank Nifty, has been consolidating in a narrow range for the last couple of weeks. Currently, it is on the verge of a consolidation breakout. On Thursday, the index found support near its 20-day EMA and has since resumed its upward trajectory. The daily RSI is inching towards the 60 level and continues to gain momentum, indicating strengthening bullish sentiment.

Additionally, the ratio chart of Bank Nifty versus Nifty has bounced off its 50-day EMA, highlighting emerging relative strength in the banking index. This signals that Bank Nifty could start outperforming the broader market.

Within the index, heavyweight components such as HDFC Bank, ICICI Bank, and Axis Bank are also showing promising signs—they are all on the verge of breaking out of their respective consolidation patterns on the daily chart. This alignment across multiple key stocks adds to the conviction that a broader breakout in the index may be around the corner.

Talking about crucial levels, the zone of 55,700-55,800 is likely to act as a crucial hurdle for the index. Any sustainable move above the level of 55,800 will lead to a sharp upside rally of upto the level of 56,500, followed by 57,200 in the short term. While on the downside, the 20-day EMA zone of 54,800-54,700 is likely to act as a crucial support for the index.

What does FII data indicate right now?


FIIs turned net sellers, pulling out Rs 11,591 crore from the cash segment last week, including a massive Rs 10,000 crore sell-off on Tuesday — the highest in over two months. Another Rs 5,000 crore exit on Thursday added pressure. In index futures, net contracts rose to -54,197 from -23,498 on May 19, leading to the long-short ratio falling to 33% from 42%, signalling increased bearish bets. Key triggers include rising bond yields in the U.S. and Japan, unconfirmed reports of Israel planning a strike on Iran, and a mild rise in COVID cases. Despite the sell-off, India’s broader market trend remains positive.

Help us with your view on the defence sector after a hige rallt and key stocks where one can focus.

The Nifty India Defence index has extended its upward trajectory and touched a fresh high last week. However, this rally comes amid an overbought setup, with the daily RSI showing a clear negative divergence—a classic warning signal where price forms higher highs while RSI prints lower highs.

This divergence suggests that the momentum behind the rally is weakening, and the upside potential may be limited in the near term. Given the current risk-reward setup, we believe it is prudent to stay cautious on the defence space for now. A period of consolidation or mild correction cannot be ruled out.

Therefore, we recommend avoiding fresh exposure to the sector at current levels until more favourable entry points emerge.

And your take on the metal sector?


The broader trend of the Nifty Metal index remains firmly bullish, as it continues to trade above both its short and long-term moving averages—each of which is trending upward. The daily RSI also reflects bullish momentum, steadily rising within the positive territory.

At present, the index is hovering near a crucial resistance zone around its prior swing high of 9,305. A decisive and sustained breakout above this level could pave the way for a sharp rally toward 9,500 and potentially 9,700 in the short term.

On the flip side, the zone of 9,130–9,100 is expected to offer strong immediate support, keeping the uptrend intact as long as this level holds.

How does the pharma sector look like now & key stocks to focus on?


Nifty Pharma index has been in the sideways zone for the last couple of weeks. The zone of 22,000-22,100 will be the crucial hurdle for the index. Any sustainable move above the level of 22,100 will lead to a sharp upside rally upto the level of 23,000 in the short term. While on the downside, the zone of 20,700-20,600 will act as immediate support for the index.

After the Q4 results, how does IndiGo seem to be placed?


The stock has been in the sideways zone for the last couple of weeks. However, it is still trading above its crucial moving averages. A sustainable move above the level of Rs 5,670 will lead to resuming its northward journey.

How about Honasa Consumer?


The stock has surged above its 200-day EMA level for the first time since October 2024. The major trend of the stock is bullish. However, the daily RSI is currently quoting at the 88 level, which is an extremely overbought condition. Hence, we believe it is likely to slide into the period of consolidation before the next round of upward rally.

Trent and BEL have made their way in the Sensex as part of the rejig. Do you recommend any positions there?


Trent: The stock is in the sideways zone, and it is trading below its 100 and 200-day EMA levels. Going ahead, any sustainable move above the level of Rs 5,600-5,650 will lead to a sharp upside rally in the stock.

BEL: The stock is in an extremely overbought zone, and it is likely to slide into a period of consolidation before the next round of upward rally.

Does there seem to be any relief for IndusInd Bank shares after the Q4 results, but not forgetting the recent headlines made by the company?

The stock has been in sideways since the last couple of trading sessions. Hence, we recommend avoiding this stock for now.

Any other sectors & stocks well poised for trading?


Nifty Bank, Nifty Private Bank, and Nifty Financial Services are all approaching a consolidation breakout, indicating potential outperformance in the short term. Apart from this, sectors like Nifty CPSE, PSE, Insurance, and Capital Markets are expected to continue their outperformance in the near term.

Technically, AXISBANK, ICICIPRULI, BHEL, JIOFIN, and HINDCOPPER are likely to witness bullish momentum in the short term.

( Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)