Indian equity markets are displaying signs of recovery with renewed buying interest, though traders should prepare for continued volatility in the coming sessions. Market expert Rahul Sharma, Director & Head of Technical & Derivatives Research at JM Financial Services, indicates that Nifty 50 has established crucial support levels following recent market corrections.

Market Support and Technical Outlook

The benchmark index has found near-term support in the 25,900-25,950 zone after experiencing sharp selling pressure. Despite a strong opening in recent sessions, the broader market structure remains bearish, leading many retail investors to utilize rallies as exit opportunities. However, institutional activity presents a more encouraging picture.

Institutional Activity and Market Dynamics

Foreign institutional investor behavior has been notably restrained during the correction phase. FII cash selling has not been aggressive despite the sharp market decline, while their positioning in Nifty futures remains bullish. This positioning indicates favorable risk-reward opportunities for long positions near the 25,000 level.

The current volatility environment should be viewed as a buying opportunity, with Nifty having potential to move toward 25,500 and possibly 25,800 once momentum improves. However, the coming sessions are expected to remain choppy due to multiple market triggers.

Near-term Market Challenges

Several factors are likely to contribute to continued market volatility:

• Monthly derivatives expiry
• Ongoing earnings season developments
• Upcoming Union Budget expectations
• Broader index movements including Nifty Bank

These elements will remain closely linked to overall market sentiment and institutional flows, with sharp swings expected in both major indices over the next few trading sessions.

Sectoral Opportunities and Stock Recommendations

Defence sector emerges as a key investment theme, driven by expectations of higher government spending in the upcoming Budget. Bharat Electronics Limited stands out among defence stocks from a technical analysis perspective.

PSU banking sector also presents attractive opportunities, with specific recommendations including State Bank of India, Canara Bank, and Bank of Baroda. For broader sector exposure, the PSU Bank BeES ETF offers diversified access to the segment.

Trading and Investment Strategy

Both defence and PSU banking stocks have already witnessed selective buying during recent market volatility and are positioned to outperform if Nifty stages a meaningful rebound. For traders focusing on the next 10-15 sessions, both sectors appear attractive from a risk-reward perspective. From an investment standpoint, BEL presents a compelling buy-side opportunity with strong technical setup and sector tailwinds supporting the outlook.

The Nifty 50 displayed early signs of stabilization on January 21 after experiencing one of its steepest corrections in recent months, with technical analysts closely monitoring key support and resistance levels for potential recovery signals. The benchmark index formed a doji-like candlestick pattern following a sharp selloff, while the RSI dropped into oversold territory below 30.00, indicating possible bounce-back conditions.

Market Performance and Technical Setup

On January 21, market sentiment remained bearish as both major indices declined significantly. The session's performance highlighted the intensity of selling pressure across the market.

Market breadth remained heavily skewed toward bears, with approximately 2,067 shares declining against 882 advancing shares on the NSE. The formation of a long-legged doji candlestick on the daily chart indicates indecisiveness among market participants at current levels, suggesting that while bearish momentum remains dominant, aggressive selling is meeting some buying interest near lower zones.

Nifty 50 Technical Analysis and Outlook

The benchmark index has witnessed significant technical damage during the current correction phase. From its all-time high, the Nifty has corrected by over 5.00% in just 11 trading sessions, marking one of the steepest declines in recent months. The index has slipped below its 200-day EMA for the first time since April, a key long-term trend indicator closely monitored by investors.

Technical analysts have identified crucial levels for potential recovery and further downside scenarios:

The daily RSI has dropped to 28.23, its lowest level since March, signaling strong downside momentum. However, this oversold condition also presents potential for a technical bounce if key resistance levels are reclaimed.

Bank Nifty Critical Juncture

The banking benchmark faces a critical test at current levels, having fallen below its 50-day moving average for the first time since late September. The index is testing important support at 58,800.00, which coincides with a support trendline, making this level crucial for determining near-term direction.

Analysts have outlined key scenarios for Bank Nifty movement:

Bullish Scenario:

• Defense of 58,800.00 support level
• Potential move toward 59,000.00 - 59,500.00 zone
• Short-covering rally possible toward 59,500.00 - 59,700.00

Bearish Scenario:

• Break below 58,280.00 (Wednesday's low)
• Potential decline toward 57,500.00 - 58,000.00 range
• Extended correction if 58,200.00 support fails

Broader Market Impact

The weakness has been more pronounced in the broader market segments. Both the Nifty Midcap 100 and Nifty Smallcap 100 indices have corrected by more than 4.00% over the last three trading sessions, underperforming the benchmark significantly.

• Midcap Index: Closed below 200-day EMA for first time since August
• Smallcap Index: Registered lowest closing level since May, trading over 6.00% below 200-day EMA

This reflects intense pressure in high-beta and risk-sensitive stocks, with selling pressure extending beyond select pockets to heavyweight stocks that had been lending stability to the market.

Trading Strategies and Risk Management

Technical analysts have provided specific trading strategies for both indices, emphasizing strict risk management given the volatile conditions. The strategies focus on both directional plays and options-based approaches, with clearly defined stop-loss levels and target zones.

The sustainability of any potential bounce remains key to watch given the strong bearish sentiment currently prevailing in the market. Traders are advised to monitor the 200 DEMA reclaim for Nifty 50 and the defense of trendline support for Bank Nifty as critical factors for determining the next directional move.