Indian stock markets demonstrated resilience in Tuesday's trading session, with benchmark indices recovering sharply from early losses amid heightened volatility. The recovery was fueled by optimism around trade developments and currency stabilization, providing much-needed relief to investors.

Market Performance

The market indices showed significant improvement from their day's lows, with both Sensex and Nifty posting notable gains:

The recovery represented a substantial turnaround from the day's earlier weakness, with the Sensex recovering approximately 700 points from its intraday low.

Key Market Drivers

India-EU Trade Agreement Optimism

Investor sentiment received a significant boost from expectations surrounding the India-European Union Free Trade Agreement, which was anticipated to be signed. Market participants closely monitored developments around this potential deal, viewing it as a positive catalyst for future economic cooperation and trade expansion.

Rupee Recovery

The Indian rupee provided additional support to market sentiment by recovering from its recent all-time lows. The currency gained 10 paise to trade at 91.80 against the US dollar in early deals, benefiting from broad dollar weakness.

Forex traders attributed the rupee's recovery to traders covering positions amid the dollar index's retreat from elevated levels.

Technical Analysis Outlook

Technical analysts provided mixed signals for the market's near-term direction. Aakash Shah, Technical Research Analyst at Choice Broking, highlighted several key technical levels:

Resistance and Support Levels:

• Immediate Resistance: 25,200–25,300 zone
• Critical Support: 25,000 level
• Downside Target: 24,950–24,900 region

The analysis indicated that the Nifty continues trading below short-term moving averages, suggesting a fragile technical setup. However, oversold conditions may result in brief, stock-specific relief rallies, though momentum indicators remain subdued.

Market Outlook

The day's trading session highlighted the market's sensitivity to both domestic policy developments and currency movements. The combination of trade agreement optimism and rupee stabilization provided the necessary catalysts for the recovery, though technical indicators suggest caution regarding sustained upward momentum. Investors continue to monitor developments around the India-EU trade deal and currency stability as key factors influencing market direction.

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.