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Index Outlook: Sensex, Nifty 50 likely to resume the uptrend

The Indian equity market is undergoing a correction. The sharp fall in the US markets last week has weighed on the Indian benchmark indices as well. The Dow Jones Industrial Average had tumbled about 2.77 per cent last week. Both the Sensex and Nifty 50 were down over a per cent last week. However, the fall in the indices is just a correction within the overall uptrend. Though there could be room to fall further, the uptrend is likely to resume eventually. As such, a further dip from here could be a good buying opportunity from a long-term perspective.

The US Federal Reserve meeting outcome is due on Wednesday. A 50-basis point rate hike is already factored in the market. We expect the indices to extend the fall as the market approaches the Fed meeting on Wednesday and then possibly reverse higher again.

The sectoral indices were mixed last week with some managing to close in green and some in red. The BSE IT index was beaten down the most. It was down 5.33 per cent followed by the BSE Realty index, down 3.46 per cent. The BSE FMCG and BSE Capital Goods indices outperformed by rising 1.97 and 1.64 per cent last week.

FPI flows

The Foreign Portfolio Investors (FPIs) turned net sellers after buying the Indian equities for seven consecutive weeks. The FPIs sold about $357 million in the equity segment. However, for December, they remain net buyers. The month of December has seen a net inflow of $553 million so far. Unless the FPIs intensifies their sell-off, the downside in the Sensex and Nifty could be limited.

Nifty 50 (18,496.6)

Nifty remained subdued all through the week. The index broke below the support at 18,500 on Friday contrary to our expectation. However, it has risen back for the low of 18,410.10 to close the week at 18,496.60, down 1.07 per cent.

The week ahead: The near-term outlook is slightly weak. Important support is at 18,360. Nifty has to sustain above this support to avoid a further fall. If it manages to bounce back from 18,360 itself, a strong rise to 19,000-19,100 can be seen from here itself.

Resistance is at 18,650-18,700. A decisive break above 18,700 will open doors for a test of 19,000-19,100 on the upside.

Graph Source: MetaStock

Graph Source: MetaStock

On the other hand, if Nifty breaks below 18,360, an extended fall to 18,100 and 18,000 is possible first. Thereafter, the index can reverse higher again towards 18,400-18,500 first and then further higher eventually.

Medium-term outlook: Cluster of supports are poised in between 18,100 and 17,900. So, the downside is likely to be limited maximum to 17,900. The overall trend is still up. The fall to 18,100-17,900, if seen, is going to be a good buying opportunity.

As long as the Nifty stays above 17,900, we retain our bullish view of seeing 19,400 initially and then 19,800 eventually on the upside. We reiterate that from a long-term perspective, Nifty has potential to target 20,300-20,500 and even higher levels in the coming months.

This bullish outlook will come under threat only if Nifty declines below 17,900. In that case, a steeper fall to 17,500 and even lower levels is possible.

Trading strategy: Hold on to the long positions taken at 18,250. Retain the stop-loss at 17,800 and follow the same strategy. Trail the stop-loss up to 18,600 as soon as the index moves up to 19,100. Revise the stop-loss further up to 19,100 when Nifty rallies to 19,950. Book profits at 20,100.

Sensex (62,181.67)

Contrary to our expectation, Sensex has declined breaking below the support at 62,350. The index tumbled to a low of 61,889.1 and has closed the week at 62,181.57, down 1.09 per cent.

The week ahead: An important support is at 61,650. Failure to bounce back immediately can drag the Sensex down to 61,650 this week. A bounce from this support can take the Sensex up to 62,000 and 62,250 again. The level of 62,250 is an important resistance. Sensex has to breach 62,250 decisively to bring back the bullish momentum and test 63,500 and 64,000 on the upside.

If Sensex fails to bounce from 61,650, an extended fall to 61,000 and lower levels is possible.

Medium-term outlook: The bigger picture is still bullish. Strong supports are at 60,600 and then at 60,000. A fall below 61,650, if seen, will be a good buying opportunity from a long-term perspective.

Graph Source: MetaStock

Graph Source: MetaStock

As long as the Sensex stays above 60,000, the medium-term outlook is bullish. Sensex is likely to touch 64,500-65,000 over the medium.

We also retain our long-term bullish view to see 66,000-66,500 on the upside.

The bullish outlook will get negated only if Sensex breaks below 60,000. But that looks less likely for now.

Nifty Bank (43,633.45)

The Nifty Bank index has outperformed last week. The index has managed to sustain above 43,000 barring the short-lived dip to a low of 42,948.45. Nifty Bank index gained momentum on Thursday and has risen to close the week at 43,633.45, up 1.23 per cent.

Graph Source: MetaStock

Graph Source: MetaStock

The outlook is bullish. Immediate support is at 43,300. Below that 43,000 and 42,850 are the next important supports. The chances are high for the index to sustain above 43,300 itself. A rise to 44,350 and 44,650 is likely to be seen in the coming weeks.

That will also keep the long-term bullish outlook intact to see 46,000 and higher levels in the coming months.

The index will come under pressure only if it declines below 42,850 decisively. That break, though less likely, can drag the Nifty Bank down to 42,000 and lower levels.

What to watch

18,100-17,900 on the Nifty

60,600-60,000 on the Sensex

Global cues

The Dow Jones Industrial Average (33,476.46) fell sharply breaking below 34,000 last week. The index has closed on a weak note at 33,476.46, down 2.77 per cent for the week.

There is an immediate support near the current levels. Inability to bounce back immediately from here can drag the Dow Jones down to 33,100 and 33,000 this week. However, a fall beyond 33,000 is unlikely as fresh buyers are likely to come into the market in the 33,100-33,000 region.

Graph Source: MetaStock

Graph Source: MetaStock

As such, we can expect the Dow Jones to resume its overall uptrend from the 33,100-33,000 region. That will keep overall uptrend intact to target 35,000 on the upside. The Dow Jones will now need to rise past 34,000 in order to ease the downside pressure and bring back the bullish momentum.

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