The Nifty has breached a critical technical level, falling below its 200-day moving average for the first time in nearly ten months amid sustained foreign institutional investor (FII) outflows and rupee weakness. This development has shifted market sentiment decisively cautious as investors brace for the upcoming Budget announcement.

Technical Outlook and Trading Strategy

Rupak De, Senior Technical Analyst at LKP Securities, highlights that the index has corrected approximately 5.00% from its all-time high in a steady decline. The breach of the 200-day moving average represents a significant technical breakdown that often erodes long-term investor confidence.

The analyst expects the correction to continue, with the index likely to remain under pressure as long as it trades below the 25,500 level. On the downside, the Nifty could drift lower towards the 24,700-24,400 zone.

Historical Budget Performance

Historical analysis reveals a concerning pattern for pre-Budget market performance. Over the past 15 years, the Nifty has delivered an average negative return of 0.52% in the week leading up to the Budget, closing higher on only eight occasions out of 15.

This time, the trajectory appears even more challenging, with three of the four major indices that led the November-December rally struggling in January. The analyst expects sentiment to remain weak at least until the Budget, with only meaningful structural changes in the Budget potentially helping shift market mood in February.

Sector-Specific Challenges

Several sectors are facing specific headwinds in the current environment. Kalyan Jewellers shares fell 21.00% during the week amid speculative reports of mutual fund selling. The stock has broken below the 61.8% Fibonacci retracement level and is approaching its 200-week moving average at 344. A bounce may emerge only if the stock avoids a decisive slip below this level.

Realty stocks emerged as the biggest losers last week, with selling pressure expected to persist in the short term. The realty index could drift towards the 657 level, from where a potential bounce may emerge.

Trading Recommendations

Despite the broader market weakness, the analyst has identified three specific trading opportunities:

Chennai Petroleum Corporation has managed to stay above the 20-day exponential moving average despite broader market sell-off, with RSI forming a positive crossover indicating improving momentum. The target of 880 aligns with the 50-day DMA placement.

Ashok Leyland has delivered a consolidation breakout on the daily chart and consistently held above the 20-day EMA. The RSI shows a bullish crossover and trending higher, supporting the upside target of 205.

Bank of Maharashtra has remained strong over recent sessions, sustaining above its breakout level on the weekly chart with RSI forming a bullish crossover on the weekly timeframe.

Budget Day Trading Considerations

The upcoming Budget falls on a Sunday, but trading will remain open as usual. The analyst expects sharp swings around key announcements but does not anticipate the Sunday factor to materially impact sentiment or add extra excitement to the proceedings. Market participants should prepare for typical Budget day volatility patterns despite the unusual timing.

Indian equity markets witnessed significant corrective pressure during a volatile trading week, with benchmark indices ending substantially lower. The Nifty experienced persistent selling pressure throughout the week, reflecting broader market uncertainty and risk-off sentiment among investors.

Market Performance Overview

The benchmark Nifty index demonstrated extreme volatility, oscillating within a wide intra-week range of 733 points as it moved between the high of 25,653 and low of 24,919. This substantial range highlights the intense battle between bulls and bears during the trading sessions.

The India VIX surged sharply by 24.80% to reach 14.19, indicating a sudden spike in risk perception and market uncertainty. This volatility spike suggests investors are pricing in higher uncertainty for near-term market movements.

Technical Analysis and Key Levels

The current technical structure of Nifty reflects a significant breakdown from previous consolidation patterns. After failing to confirm a breakout, the index has slipped below the trendline drawn from the high formed in September 2024. The index has also breached the short-term 20-week moving average and now hovers near the lower Bollinger Band.

The region of 25,000–25,150, which includes the 200-DMA on the daily chart, represents a key support zone currently being tested. If this zone is violated convincingly, it may trigger a deeper corrective move. Conversely, any bounce would remain vulnerable unless the index reclaims the 25,650 levels.

Sector Rotation Analysis

Relative Rotation Graphs comparing various sectors against the CNX500 Index reveal distinct sectoral trends. The analysis shows sectors positioned across different quadrants based on their relative performance and momentum.

Leading Quadrant (Outperformers):

• Nifty IT Index (strong rotation)
• Financial Services Index
• Midcap 100
• PSU Bank Index
• Banknifty
• Metal Index
• Services Sector Index

Weakening Quadrant:

• Infrastructure Index
• Nifty Auto Index

Lagging Quadrant (Underperformers):

• Nifty Energy Index
• Realty Index
• FMCG Index

Improving Quadrant:

• Pharma Index (rolled back from leading quadrant)

Week Ahead Outlook

Given the steep correction and mildly oversold setup on the daily chart, the coming week may see a tentative start with possible technical rebound. However, the week will be shortened by the Republic Day holiday on Monday, and Tuesday marks the monthly F&O expiry, which typically brings additional volatility.

The weekly chart shows a long black candle, signifying strong selling pressure and breakdown from prior consolidation. Pattern-wise, Nifty has broken below the falling trendline with bearish implications, confirmed by a wide-range candle and close below the 20-week moving average.

Trading Strategy

For the week ahead, a cautious and stock-specific approach is recommended. While short-term oversold conditions may fuel a bounce, the broader technical structure has weakened considerably. Traders should avoid aggressive long positions and focus on protecting existing profits. Any upside movement should be utilized to lighten positions or initiate low-risk short opportunities if resistance levels hold. The approach should emphasize high selectivity, tight risk management, and light exposure ahead of expiry volatility.