The Indian stock market began the trading week with cautious optimism, as the Nifty struggled to surpass previous highs for five consecutive sessions. This development comes amid a significant shift in market sentiment over the past two months, transitioning from bullish in late June to bearish by the end of August.

Technical Analysis and Support Levels

Technical analyst Rajesh Bhosale has identified 24,600 as the crucial threshold for confirming a trend reversal, with strong support at 24,400-24,450. This marks an upward shift from previous support levels, which were around 23,800 in June and have now moved to approximately 24,000.

Sector Performance

The IT sector is attracting renewed attention, with the Nifty IT index hovering around its 200-week moving average. This sector is showing resilience and outperformance when broader markets strengthen, particularly in midcap IT counters.

Stock Recommendations

Bhosale recommended Mphasis, which surged nearly 5% in early trade. The target for Mphasis is set at ₹3,150 with a stop loss of ₹2,815, based on an inverse head-and-shoulder pattern. Exide Industries was also highlighted following its breakout from consolidation, showing both channel and flag pattern breakouts.

Market Dynamics

The broader market continues to perform well, with sectoral rotations providing trading opportunities. However, the shift in sentiment has prompted some analysts to recommend a 'sell on rallies' approach for traders.

Institutional Investors and Options Data

Foreign Institutional Investors (FIIs) maintain substantial short positions, currently at 1.93 lakh contracts, down from 2.12 lakh contracts previously. The put-call ratio shows stark differences between series, with the weekly ratio at 0.50 and the monthly ratio at 1.20, indicating high bearishness in the short term but also suggesting possible oversold conditions.

Economic Indicators and Market Triggers

Despite the bearish sentiment, GDP expectations have surged above 7%. Upcoming GST committee meetings could serve as potential market triggers. The Indian rupee has weakened against the dollar, adding another factor to the market dynamics.

Market Volatility

Interestingly, despite the apparent shift in market sentiment, the India VIX (Volatility Index) remains subdued, presenting an intriguing contrast to the observed market volatility.

Conclusion

The Nifty's technical landscape paints a picture of a market in transition. While short-term sentiment leans bearish, the contrasting put-call ratios, steady volatility index, and sector-specific performances suggest a complex market environment. Investors and traders are advised to closely monitor support levels, particularly the 24,600 mark for potential breakouts, and upcoming economic events for potential market direction.

Indian stock markets ended lower in a holiday-shortened week, with the benchmark NSE Nifty index posting its second consecutive month of negative returns in August. The decline was primarily attributed to concerns over potential US tariffs on Indian exports and overall market volatility.

Market Performance

The BSE Sensex fell by 270.92 points (0.34%) to close at 79,809.65, while the NSE Nifty dropped 74.05 points (0.30%) to end at 24,426.85. For the month of August, the Nifty recorded a decline of 1.38%, marking two straight months of losses for the index.

Key Highlights

• The Nifty traded within a narrow 816-point range throughout August.
• A sharp reversal in the final leg of the month saw the index shed over 700 points in just six trading sessions.
• The Bank Nifty significantly underperformed, declining by 4% in August.

Technical Analysis

Technical indicators suggest a bearish trend:

• Nifty is currently trading below its 20-day, 50-day, and 100-day Exponential Moving Averages (EMAs).
• The daily Relative Strength Index (RSI) has dipped below 40, indicating weakening momentum.
• The 200-day EMA zone of 24,300-24,250 emerges as a crucial support level.
• Resistance is observed at the 24,650-24,700 range.

Futures and Options

The Nifty futures rollover increased to 83.63% from July's 75.71%, suggesting heightened activity in the derivatives segment.

Sector Outlook

Based on rollover data:

• Automobile, Consumer Durable, and FMCG sectors show promise.
• Banking and financial services sectors face headwinds.

Corporate News

Reliance Industries, a market heavyweight, broke down from a 26-day consolidation phase during its Annual General Meeting (AGM), adding to the market's downward pressure.

Looking Ahead

As the market enters September, investors and traders will be closely monitoring developments regarding potential US tariffs on Indian exports. The technical support level at the 200-day EMA zone (24,300-24,250) will be crucial in determining the Nifty's short-term trajectory. Market participants should also keep an eye on global cues and domestic economic indicators for further direction.