Market strategist Anand James from Geojit Investments Limited has issued a cautionary outlook for Indian equities as markets navigate pre-Budget volatility amid persistent foreign institutional investor (FII) selling and rupee weakness. The technical setup suggests heightened volatility ahead, with several oversold stocks potentially positioned for relief rallies.

Nifty's Fragile Technical Setup

The Nifty's recent performance has shown concerning technical signals, with a feeble bounce off the 200-day Simple Moving Average (SMA) followed by a close back below this key level within just a few days. This pattern suggests markets are anticipating further downsides ahead of the Budget announcement.

The India VIX has been rising steadily for four weeks, with its break and successive close above the 200-day SMA indicating expectations of increased market volatility.

Historical Pre-Budget Performance

Historical analysis reveals a challenging pattern for pre-Budget trading periods. Over the past 15 years, the average return for Nifty one week before the Budget has been negative at -0.52%, with the index closing higher on only 8 occasions out of 15.

Weekend-adjacent Budgets historically show thinner liquidity, weaker Budget Day performance, and slightly worse one-week drift compared to weekday announcements.

Kalyan Jewellers: Oversold Setup

Kalyan Jewellers has experienced significant pressure, falling 21% recently amid speculative news around mutual fund selling. The stock presents an interesting technical setup, having traded below its 200-day SMA for over one year and currently sitting approximately 30% away from this benchmark - the farthest distance ever recorded.

With oscillators showing oversold conditions, James identifies this as an ideal setup for a relief rally targeting the 440-458 range through mean reversion moves. However, failure to consolidate in the 370-340 region could trigger the next wave of downsides toward 250.

Trading Recommendations

James has identified two specific trading opportunities for the pre-Budget period:

ACE (Current Price: 791)

• View: Buy
• Target: 810-850
• Stop Loss: 764
• Rationale: Approaching 61.8% Fibonacci retracement level with oversold 14-week RSI and MACD showing exhaustion signs

Jyothy Labs (Current Price: 249)

• View: Buy
• Target: 258-268
• Stop Loss: 240
• Rationale: Deeply oversold setup with weekly RSI around 20 and MACD histogram showing early exhaustion signs

Sector Outlook

The realty sector emerged as the biggest loser recently, with the Nifty Realty index appearing oversold after a steep decline from its 200-day SMA. Despite oversold conditions, the sector's slip to new 52-week lows and heavy weights showing potential for further downside suggest the index could extend its downtrend, with trendline support visible at 600.

Indian equity markets are positioned for a potential relief rally in the shortened trading week following encouraging signals from the United States regarding trade tariffs. US Treasury Secretary Scott Bessent indicated on Friday the potential removal of an additional 25% tariff on India, providing a catalyst for optimism despite ongoing foreign institutional investor (FII) selling pressure.

Technical Analysis and Support Levels

Market analysts have identified critical technical levels that will determine the near-term direction of the Nifty. The consensus points to strong support in a specific zone, with resistance levels clearly defined for any potential recovery.

Chandan Taparia, Head of Derivatives & Technicals at Motilal Oswal Financial Services, notes that the index is approaching a major structural support zone while showing oversold signals across most momentum and mechanical indicators. Historically, all intermediate corrections since 2020 have found support around the 20-month moving average, currently positioned near the 24,650-24,800 zone.

Market Dynamics and FII Impact

The immediate trend remains weak amid global uncertainties and sustained FII selling pressure. However, technical analysts point to several encouraging factors that could support a recovery. The recent correction aligns with seasonal patterns, as January has typically been a negative month in most of the past seven years.

Historical data suggests that weakness in January and February often creates opportunities for a stronger March-April phase, indicating that market participants can gradually accumulate selective positions for the next recovery leg.

Expert Trading Strategies

Market experts have outlined specific strategies for navigating the current environment:

Motilal Oswal Strategy:

• Bear Put Spread for February 24 expiry
• Buy 25,000 strike put at ₹323 premium
• Sell 24,500 put at ₹173 premium
• Maximum risk: ₹9,750 per lot
• Maximum profit: ₹22,750 per lot

Kotak Securities Approach: Amol Athawale from Kotak Securities recommends level-based trading, noting that as long as Nifty trades below the 100-day SMA near 25,500, the weak formation is likely to persist.

Stock Recommendations

Analysts have identified specific stocks showing technical strength despite broader market weakness:

Buy Recommendations:

Sell Recommendation:

• Indian Energy Exchange February Futures: CMP ₹127.50, Stop Loss ₹137, Target ₹108

Market Outlook

The convergence of technical oversold conditions, potential tariff relief, and historical seasonal patterns suggests that current levels may present accumulation opportunities for patient investors. However, any sustainable recovery will require a moderation in FII selling pressure and the index's ability to reclaim key resistance levels above 25,600.