Benchmark stock market indices experienced significant losses last week, with both the Nifty50 and BSE Sensex seeing declines of over 2%. The sell-off was driven by a combination of global economic pressures, sustained foreign institutional investor (FII) outflows, and rising US bond yields. Despite the broader market struggles, the IT sector managed to provide some relief, with optimism surrounding Tata Consultancy Services (TCS) lifting the sector’s performance.
Although the IT sector showed promise, with TCS jumping 5.6% on Friday, the broader market indices, including Sensex and Nifty, ended in the red, grappling with high volatility during Friday’s session. The key question now is whether the market turbulence will persist in the coming week. Here are four crucial points investors should keep an eye on:
Nifty and Bank Nifty Under Pressure
The Nifty50 closed 573 points lower last week at 23,431.50, slipping below both its 21-week and daily exponential moving averages (EMAs). This drop puts the index at a critical support level of 23,200–23,300, which has historically provided a strong floor. According to Puneet Singhania, Director at Master Trust Group, if the Nifty breaks below this zone, selling pressure could accelerate, potentially pushing the index toward 22,900. On the upside, 23,850 is viewed as a key resistance level. A sustained move above this could indicate a possible rally toward 24,200.
Bank Nifty, which dropped by 4.42%, is also under pressure, having fallen below the 50,000 mark. The index is now in a "sell-on-rise" trend, with Fibonacci support at 48,300. If this support level is breached, a further decline of 1,000 points could follow. Traders are advised to use 49,500 as a stop-loss for any short positions on Bank Nifty. Given the challenges faced by the banking sector, including concerns over rising non-performing assets (NPAs) and the impact of global liquidity tightening, the Bank Nifty may continue to remain volatile in the short term.
Global Factors and FII Selling
Foreign institutional investors (FIIs) have been net sellers, withdrawing $2.2 billion from Indian markets in January alone. The strengthening of the US dollar and rising US bond yields are key factors behind this capital outflow. As US bond yields continue to rise, emerging markets like India are seeing increased competition for foreign capital, leading to a pullback in investments. Additionally, subdued expectations for Q3 earnings have contributed to a decline in investor sentiment, further adding pressure to the Indian equity markets. With global factors playing a significant role in the recent downturn, the continuation of these trends could lead to more turbulence for Dalal Street.
The strengthening of the US dollar has also made the Indian rupee weaker, further discouraging foreign investment in Indian equities. The rising US bond yields, which make US assets more attractive, could continue to weigh on emerging markets as investors shift their focus to safer, higher-yielding US securities. Moreover, the global economic slowdown and the impact of geopolitical tensions, such as the ongoing Russia-Ukraine conflict, are likely to dampen investor confidence and contribute to volatility in equity markets worldwide.
IT Sector Likely to Continue Gaining
Amid the broader market sell-off, the IT sector has stood out as a relative outperformer. The Nifty IT index gained 2% last week, with Tata Consultancy Services (TCS) surging 5.6% on Friday. TCS expressed optimism about a revival in demand, particularly in North America, which has fueled optimism across the IT sector. Analysts believe that IT stocks could continue their positive momentum, especially given the strong performance and positive outlook from India's largest IT services firm.
The optimism in the IT sector comes amid a shift in demand patterns, with more companies seeking digital transformation and cloud solutions in the face of economic uncertainty. The increasing reliance on technology for automation, artificial intelligence (AI), and data analytics has provided a boost to Indian IT companies, with TCS, Infosys, and Wipro well-positioned to benefit from these trends. Furthermore, Indian IT companies continue to enjoy a competitive advantage due to their ability to offer cost-effective solutions, which makes them attractive to global clients looking to streamline operations.
Analysts also expect the growth in the IT sector to be further driven by increased spending on cybersecurity, digital infrastructure, and enterprise resource planning (ERP) software. These factors, combined with a strong US dollar, which benefits India's IT exporters, make the sector an attractive investment choice in the near term. However, investors should also be mindful of the risks posed by tightening immigration policies in key markets like the US, which could impact the talent pool available for Indian IT firms.
Trading Strategy
Given the current market conditions, Singhania recommends a cautious approach. He advised traders to closely monitor the support zone of 23,200–23,300 for the Nifty50. A breach below this could signal further downside, while any bounce near 23,850 might offer a shorting opportunity. For Bank Nifty, the support level at 48,300 will be critical. As the markets face global uncertainties and FIIs continue their sell-off, investors should adopt a risk-managed approach and be prepared for potential volatility in the coming sessions.
Investors who are looking for opportunities amid the market turbulence should consider focusing on sectors that remain resilient, such as IT. With global headwinds continuing to affect the broader market, those with a longer investment horizon may look for value opportunities in underperforming sectors like real estate, banking, and infrastructure, which could benefit from government initiatives and policy support.
In conclusion, while the IT sector offers some optimism, the broader market faces significant challenges due to global factors and FII selling. Investors should remain cautious, watch key support and resistance levels closely, and prepare for a market environment that could remain volatile in the short term. A well-diversified portfolio, combined with a risk-management strategy, is key to navigating the uncertain market conditions that may persist in the coming weeks.
