Indian equity benchmarks wrapped up the week on a solid note, buoyed by strong domestic macroeconomic data and ongoing policy reforms. The Nifty gained 1.29% to settle at 24,741, while the Sensex climbed 1.13% to close at 80,710. The uptrend was broad-based, with midcap and smallcap indices outperforming, rising 1.8% and 2.5% respectively — a clear signal of rising risk appetite despite persistent global headwinds.

Investor sentiment was lifted by India’s Q1 GDP growth of 7.8%, the fastest in five quarters, reinforcing the economy’s resilience. Policy momentum also played a key role, with the GST Council’s move to streamline tax slabs to 5% and 18% adding clarity and fueling optimism across cyclical sectors.

High-frequency indicators underscored the positive trend: manufacturing PMI surged to 59.3, a 17-year high, while services PMI jumped to 62.9, marking the highest level in 15 years. On the external front, the current account deficit narrowed to 0.2% of GDP, and FDI equity inflows grew ~15% YoY in Q1, reflecting external stability and investor confidence.

With this, analyst Sudeep Shah, Vice President and Head of Technical & Derivatives Research at SBI Securities, interacted with ET Markets regarding the outlook for the Nifty and Bank Nifty, as well as an index strategy for the upcoming week. The following are the edited excerpts from his chat:

Markets didn’t perform very well after the GST 2.0 reform. Why do you think is that?

The benchmark index Nifty remained highly volatile throughout the past week, with all five trading sessions opening either with a gap-up or gap-down—reflecting elevated uncertainty in market sentiment. In addition to the erratic openings, the index frequently reversed sharply from intraday highs and lows, creating a challenging environment for traders and keeping market participants on edge.

From the recent low of 24404, Nifty staged a pullback rally amid continued volatility and managed to end the week on a positive note. On the weekly chart, it formed a bullish candle with a long upper shadow, indicating selling pressure at higher levels despite the recovery. Technically, the index is trading above its 100-day and 200-day EMA, suggesting that the broader long-term trend remains intact. However, it is oscillating near its 20-day and 50-day EMAs, pointing to indecision in the short to medium term.

Notably, all these key moving averages are currently flat, which typically signals a phase of consolidation or sideways movement. This view is further supported by momentum indicators and oscillators such as RSI and MACD, which are also reflecting a lack of clear direction, reinforcing expectations of range-bound action in the near term.

In the Nifty index, Banking and IT sectors hold the highest weightage, making their performance crucial to overall market direction. Unfortunately, both sectors have been underperforming, acting as a drag on the index. Weakness in IT stocks and muted momentum in Banking stocks have capped upside potential and contributed to the ongoing consolidation. A revival in these sectors will be key for any sustained bullish momentum.

Talking about crucial levels, the zone of 24950–25000 is expected to act as a strong resistance for Nifty. On the downside, the 24550–24500 range is likely to offer immediate support. A decisive and sustained move beyond either of these levels could trigger a fresh trending move in the index.

What view would you have about Bank Nifty now?

The banking benchmark index, Bank Nifty, has been consistently underperforming frontline indices over the past couple of weeks. This sustained weakness is evident in the ratio chart of Bank Nifty versus Nifty, which is currently trading at a 108-day low—highlighting relative underperformance.

Adding to the bearish tone, the Mansfield Relative Strength indicator is quoting below the zero mark, indicating that Bank Nifty is lagging not just against Nifty but also the broader market. Unless there’s a turnaround in momentum, the banking space may continue to act as a drag on overall market sentiment.

During the last week, it has traded in a narrow range of 888 points and ended at the 54114 level with a gain of 0.86%. On a weekly scale, it has formed a bullish candle with an upper shadow, which indicates selling pressure at higher levels. Currently, the index is trading below its 20, 50 and 100-day EMA levels. Further, the daily RSI is in the bearish zone as per RSI range shift rules.

Going ahead, the zone of 54500-54600 will act as an immediate hurdle for the index. While on the downside, the 200-day EMA zone of 53600-53500 will act as crucial support for the index. A sustainable move on either side will lead to a trending move in the index.

How are banking heavyweights HDFC Bank and ICICI Bank placed right now?

The combined weight of HDFC Bank and ICICI Bank in the Bank Nifty is nearly 55%, making it imperative for both heavyweights to perform well for the index to do so. Since late July, HDFC Bank has corrected 5.5% from its high of 1019 made on 24th July, while ICICI Bank has corrected 6.5% from its high of 1500 made on 25th July. In contrast, the Nifty has corrected only 2% during the same period, highlighting the relative underperformance of Bank Nifty, largely due to weakness in these two stocks.

Currently, both stocks are trading below their short-term moving averages. These averages are edging lower. In contrast, the daily RSI is suggesting sideways action. Hence, these stocks are likely to continue their sideways trend along with bearish bias in the next couple of trading sessions.

FIIs remain sellers. What is the expectation here and what effects do you see because of this?

FIIs have pulled out nearly 94600 crore from the cash market over the last two months. Sentiment has been weighed down by factors such as US–India trade tensions, weak corporate earnings, a depreciating rupee, and the possibility of a rate cut by the Federal Reserve in its September policy meeting, which could make US markets more attractive. Additionally, valuation concerns and global geopolitical uncertainties have prolonged the selling pressure in Indian equities. That said, ongoing policy reforms provide upside potential for a more stabilized and gradual recovery in foreign flows. However, a large and swift reversal is unlikely without a resolution in trade disputes. Domestic institutional support, meanwhile, could help moderate outflows and foster selective inflows in the near term.

What is the view on FMCG and consumer durables post the GST reforms?

The Nifty FMCG index has witnessed profit booking after the announcement of GST reforms. Considering the current chart structure, we believe it is likely to witness consolidation in the short term.

While Nifty Consumer Durable is likely to continue its northward journey in the short term. It has recently given a horizontal trendline breakout on a daily scale, and it is strongly outperforming the frontline indices. The momentum indicators and oscillators are also suggesting strong bullish momentum. Hence, we believe, it is likely to continue its northward journey in the next couple of trading sessions.

Any other sectors that are currently in focus?

Nifty Metal: The Nifty Metal index has strongly outperformed frontline indices in the last week. It has given a downward sloping trendline breakout on a daily scale. The ratio chart of the index as compared to the Nifty index has also given a consolidation breakout, and it is currently trading at a 110-day high, further reinforcing relative strength. Currently, all the moving averages and momentum-based indicators are suggesting strong bullish momentum in the sector. Hence, we believe, it is likely to outperform in the short term.

Apart from this, Nifty Auto and Consumer Durable are likely to continue their outperformance in the short term.

On the flip side, Nifty Private Bank, Financial Services, Defence, IT, Media, Oil & Gas, and Realty sectors are likely to underperform in the short term.

Any stocks within those sectors?

Technically, several stocks are showing strong relative strength and are likely to continue their outperformance in the near term. Tata Steel Ltd and Jindal Steel & Power Ltd have maintained bullish momentum, supported by favourable price action and volume trends. Swiggy and Eternal is also showing signs of strength, backed by improving sentiment in the food delivery space. Pondy Oxides and Chemicals Ltd (POCL) and Gujarat Mineral Development Corporation Ltd (GMDC) are trading with positive bias, supported by strong technical setups. Goldiam International Ltd continues to show resilience, while Hyundai Motor Company and Ashok Leyland are benefiting from sustained buying interest in the auto sector. Lastly, Lemon Tree Hotels Ltd is holding firm above key support zones, indicating potential for further upside. Overall, these stocks are well-positioned to outperform in the short term, provided broader market conditions remain supportive.

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