Domestic Equity Markets Show Resilience After RBI Policy Decision
On Friday, India's benchmark equity indices concluded trading with minimal movement, registering a modest upward shift following the Reserve Bank of India's monetary policy committee announcement to maintain the current repo rate. The trading session witnessed a late surge in investor confidence, propelling the Sensex to gain 266.47 points and settle at 83,580.40. Simultaneously, the Nifty 50 index advanced by 50.90 points, closing at 25,693.70.
Weekly Performance and Sectoral Trends
Throughout the week, the Nifty 50 demonstrated robust performance with a substantial 3.5% appreciation, while the Nifty Bank index recorded a 2.92% increase. This positive closure marks a recovery after two consecutive weeks of declines. Sectoral analysis revealed mixed outcomes: PSU Bank, IT, and pharmaceutical sectors faced downward pressure, whereas FMCG, oil and gas, consumer durables, private banks, and real estate segments experienced notable gains.
Market Drivers and Expert Analysis
Financial experts identify the significant interim trade arrangement between India and the United States as the primary catalyst boosting market sentiment. This agreement serves as a foundational step toward a comprehensive bilateral trade pact, injecting optimism into the investment landscape.
Dharmesh Shah, Vice President at ICICI Securities, provided detailed market insights: "Equity markets regained their momentum as the US-India trade deal positively influenced market sentiment. The Nifty 50 gained 3.4% to settle a volatile week at 25,694. Broader markets performed in sync with the benchmark, registering over 3% weekly gains."
Shah further elaborated on sectoral performance: "Oil & Gas, realty, and automotive sectors led the market recovery, while IT and Defence sectors underperformed. The weekly price action formed a substantial bull candle that closed above the previous two weeks' highs, indicating structural improvement and confirming the resumption of an upward trend."
Technical Outlook and Support Levels
The rejuvenation of upward momentum, supported by improving market breadth, suggests that the recent retracement represents a healthy market reset rather than a setback. This development sets the stage for the Nifty 50 to potentially challenge its all-time high of 26,350 in the coming weeks.
Shah cautioned about potential volatility: "Intermittent volatility cannot be ruled out amid geopolitical developments, inflation data releases, and the concluding phase of the earnings season. In this context, any market decline should be viewed as an opportunity to accumulate quality stocks with strong earnings potential. Strong support is established at 25,200, representing the 61.8% retracement of the recent upward movement (24,571-26,341) coinciding with the 200-day exponential moving average."
Validation of Positive Market Bias
Several observations reinforce the positive market outlook:
- Key index heavyweights in financials, oil & gas, and automotive sectors (representing over 50% cumulative weightage of Nifty 50) have regained momentum, providing impetus for the next phase of upward movement.
- The rapid pace of retracement signifies structural improvement, with Nifty 50 recovering the previous four weeks' 6.5% decline within a single week.
- Historical patterns show that intermediate corrections since COVID lows have consistently found strong support near the 20-month exponential moving average, each instance followed by approximately 20% advances over subsequent five to six months.
Broader Market Performance and Breadth Indicators
The Nifty midcap index successfully defended its 52-week exponential moving average over the past nine months, while the small cap index showed supportive efforts from the lower band of a six-month falling channel. Improving market breadth is expected to broaden the ongoing rally.
Market breadth indicators show significant improvement: the percentage of stocks trading above their 50-day simple moving average has recovered from bearish extremes of 15% to 42%, while the percentage of stocks above 200-day SMA within the Nifty 500 universe has enhanced to 38%. Historically, such contractions in breadth have preceded durable market bottoms, with extreme bearish readings near 15% marking inflection points.
Key Market Monitorables and Stock Recommendation
Market participants should monitor several critical factors: US and India inflation data releases, and Brent Crude's movement toward a nine-month resistance trend line positioned at 72. A decisive close above this level could trigger extended rally conditions.
Stock Recommendation: Dharmesh Shah of ICICI Securities recommends purchasing Bharat Electronics Ltd (BEL) shares in the price range of ₹421-433, with a target price of ₹484 and a stop loss set at ₹398.
Disclaimer: The Research Analyst or his relatives or ICICI Securities do not have actual/beneficial ownership of 1% or more securities of the subject company as of the specified date, nor do they have any material conflict of interest. The views and recommendations presented in this analysis belong to individual analysts or broking companies. Investors are strongly advised to consult certified experts before making investment decisions, as market conditions can change rapidly and individual circumstances may vary.
