On Tuesday, Nifty 50 hit a new all-time high of 24,429.15 indicating that the markets are in a strong bullish trend. However, the very next trading session saw Nifty giving up 1.2% gains intra-day. India’s biggest yearly event Budget is on July 23 and there is a lot of volatility surrounding it in the market. One basic question is how do you play the markets? Should you book profit or be a fence sitter now? Here are some key levels to watch out for and an analysis of the trend so far:
Key Nifty levels to watch ahead of Budget
According to industry experts, if Nifty settles above the mark of 24,400 then it is expected to move towards 24,600 and 24,800 even before the Budget. However, a strong resistance will follow at the mark of 25,000. With a similar approach, Ajit Mishra, Senior Vice President of Research at Religare Broking said that a positive trend may continue until Nifty breaks the 23800 level, any upmove above 24,500 can take Nifty to a new milestone i.e. 25000.
However, on the downside, if the index falls below 24,000, it could correct to 23,600 and 23,400, said Mandar Bhojane Equity Research Analyst at Choice Broking.
Giving an extreme scenario, Anand James, Chief Market Strategist at Geojit Financial Services said that Nifty and Sensex have room for upside till 24720/860 and 80860/81650 respectively with the present move, while their downside marker may be placed at 21160/79890, respectively.
Key Sensex levels to watch ahead of Budget
“For Sensex, the immediate hurdle is placed at 80,400. If Sensex closes decisively above this level on a daily scale, the next targets are 81,800–82,000. Support for Sensex is at 79,000, with 78,400 (21 DEMA) being the next support level if breached,” said Jigar S Patel, Senior Manager and Technical Research Analyst at Anand Rathi Shares and Stock Brokers.
What are technical indicators showing?
The RSI is at 73.60, indicating that the current bullish trend is likely to continue ahead. According to Bhojane, it suggests that a further 1-2% rally is possible until the budget. Post-election, Nifty has gained around 3,119 points (14.6%). However, cautioning investors Mishra of Religare said that the indicators are showing slightly overbought positions which is causing time-wise correction in the indices.
Most technical indicators are pointing towards a bullish trajectory. The Nifty50 and the Sensex are trading above their short-term moving averages, specifically the 10-day and 21-day exponential moving averages (EMAs). Additionally, the MACD indicator is also displaying a positive trajectory, said Vishnu Kant Upadhyay, Assistant Vice President of Research and Advisory at Master Capital Services.
Also, the FIIs’ long-short ratio in index futures has surged to 84%, the highest in months, indicating a heavy leaning towards bullish positions and potential for significant profit booking. “Traders are advised to close their short-term and long positions to capitalize on these gains,” said Patel.
This time, markets are approaching the budget with VIX near the 30-day low, a 57% decline from the peak volatility seen after the election result announcement. While the low VIX points towards a low volatility expectation, the risk is always on the upside for the VIX, which is further amplified by cues from the US expected shortly by way of inflation figures, Powell’s testimony etc. As is, Nifty’s range expectation, as projected by VIX is 25340-23440 for the next 30 days, which might widen by another percentage in the run-up to budget day, said James.
Strategy to defend against volatility
“To defend against volatility, a strategy of buying on dips at 23,700 and 23,600 is recommended if the index drops below 24,000,” Bhojane added. Investors can rely on the same old method, focusing towards defensive sectors like FMCG and pharma can provide stability in a highly volatile market.
With a different approach, Patel of Anand Rathi suggests that if the index surpasses 24,500, the rally could extend to higher levels. However, it is prudent to book full profits in this scenario to mitigate the risks associated with the current bullish extremities in the market.
Over the years, the budget has ceased to be a day for knee-jerk reactions. Nevertheless, the run-up to the budget day is prone to episodes of some knee-jerk reactions, as markets cannot remain unaffected by speculations.
