D-Street week ahead: Nifty may try rebound, but volatility likely to rise

The domestic equity market witnessed major turmoil accompanied by extremely high volatility on the last day of the week gone by, as the Nifty50 swung nearly 500 points during the day, though it ended with modest losses. The Nifty has continued its slide, losing 372 points or 3.23 per cent on a weekly basis. The market saw high-intensity meltdown in the banking, financial services and NBFC stocks, following a panic triggered by rumours that many NBFCs are not being able to roll over their short-term loans and honour debt obligations.

The panic spread to the other sectors as well.

Last week, we had noted that the market would continue to remain over-extended on the higher timeframe charts and mean reversion would continue. However, the volatility witnessed on Friday was unprecedented. In any case, Nifty50 took support on the 29-month-long upper rising trend line as seen on the weekly charts.


The previous week’s low of 10,866 followed by the 50-week moving average are likely to act as supports not for Nifty not only in the coming week but also in the coming month. It would be extremely crucial for the Nifty50 to tread above these levels to avoid any structural damage to the charts.

The Weekly RSI stood at 53.8861 and has marked a fresh 14-period low, which is a bearish indication. A bearish divergence was also observed, as the weekly RSI made a fresh 14-period low, while Nifty50 has not. While the weekly MACD still remains bullish, it is sharply narrowing its trajectory.

Overall, as we enter a new week, we expect the market to see volatile oscillations with the 10,866 level acting as major support throughout the week in event of any weakness. We expect some attempts to pull back and stabilise, but volatility is expected to remain ingrained in the market. The 10,866 level and 50-week moving average would be crucial in the coming weeks to avoid any structural damage.

In the current circumstances, we strongly recommend avoiding aggressive positions on either side. Stay away from any major directional exposure or keep exposures at very modest levels. A highly cautious view is recommended for the coming week.

In the study of Relative Rotation Graphs, we compare various sectors against CNX500, which represents over 95 per cent free-float market-cap of all the listed stocks.

In the coming week, we expect Bank Nifty and financial services stocks to continue to lose momentum the way they have been doing over the past few weeks. Also, broader Indices such as CNX100 and CNX200 will continue to falter and may not show any eye-catching performance.

No notable performance is expected from the services sector and the FMCG pack. The IT pack has been gaining momentum on a weaker rupee and it may continue its show in the coming week. We may see some relative outperformance from them. Also, Nifty Midcap, Nifty Next 50 (Nifty JR), public sector enterprises, infrastructure and metal stocks will continue to witness improvement on momentum front and we may see relative outperformance coming from these packs. Auto and realty sectors are expected to consolidate. Besides, some sporadic stock-specific outperformance can be expected. Consumption stocks are also likely to underperform relatively.

Important Note: RRGTM charts show the relative strength and momentum for a group of stocks. In the above chart, they show relative performance as against the Nifty50 Index, but it should not be used directly as buy or sell signals.