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Technical and Fundamental Analysis: NIFTY, BANKNIFTY

Updated: Dec 6, 2019

Analysis Summary:


· The spike triggered after Tax SOPs announcement on 20th September is fading

· 25 basis point drop in repo rate by Reserve Bank of India (RBI) failed to impress the market

· Our weekly market outlook on #NIFTY and #BANKNIFTY remains bearish


The euphoria following tax SOP announcement on 20th September started dying down in the following week. That rally was climatic, and was super stretched on the first day of following week. This extended market, hit the significant supply area near 11700, which was the origin of earlier vertical market collapse that had started on 18th July. Not surprisingly, the market started descending from that point. Based on what the technical price charts and NIFTY open interest said, we gave two bearish trade calls on NIFTY (Bear Put and Bear Call). Both these calls ended in profit.


NIFTY Chart

As seen in the NIFTY price chart above, we see that the market continued moving south during first week of October. The Repo Rate cut announcement on 4th October by RBI was nullified by RBI’s economic outlook. RBI cut India’s GDP growth estimate for the financial year from 6.9% to 6.1%, and the market responded with a selloff as seen in an extended bearish bar.


BANKNIFTY, India's banking index, is showing greater weakness than NIFTY. While the retracement in NIFTY is about 50% of most recent rally, BANKNIFTY has retraced about 70% already. As both these indices are in the middle of earlier extended rally candle, there is little to demand in the middle area stop the market from falling until it reaches bottom of respective candles.

BANKNIFTY Chart

Prediction for NIFTY and BANKNIFTY based on fundamental analysis:

Fundamentally – sentiment in the industry is very weak, and is evident from the statements by finance ministry and RBI. Though the government may not have openly admitted about economic problems, the Finance Minister in her recent announcements has undone many mistakes she did in the fiscal budget three months ago. However the industry outlook is very down, and so are most of economic indicators. The unemployment rate is high, industrial output is down, both exports and imports are down as well. The car industry is worried about mounting inventory of unsold vehicles, the real estate industry is sitting on unsold inventory of finished houses in T1-T2 cities. People are spending less and borrowing less – implying that they are unsure of their own future. These all are the the smoke signals of a looming recession.


The securities market only reflects the market players’ sentiments. No wonder, we are going to see more bearishness going forward.


What Next for NIFTY and BANKNIFTY?


Given the downward momentum of the markets, our weekly prediction continues to remain bearish. We expect NIFTY to race towards 10700 level during current and next week. BANKNIFTY is much weaker than NIFTY, and can hit the demand area at 26800 during this week itself. Very likely, BANKNIFTY will continue its losses beyond 26800. We shall post our trade calls shortly.


Have you read our forecasts for other markets?


- Weekly Technical Summary for WTI Crude Oil 24th Sept 2019

- Trading Week Ahead (US) – 15-Sep-2019