Sensex, Nifty plunge to two and a half month low; where is Indian share market headed from here?

On the back of subdued global cues, Indian share markets plunged to nearly two and a half month low on Thursday, on the expiry day of September derivative series. BSE Sensex breached the crucial 37,000 on downside and slipped to a level which was last seen on July 17 this year. Similarly, in line with SGX Nifty, the broader Nifty 50 index tumbled 216 points and gave up the crucial 10,950. Indian share markets have been mirroring the global markets, wherein the overnight trade on Wall Street, major US indices plunged up to 3 per cent. The reason behind the fall in US stocks was statements by the US Federal Reserve on the pace of the economy. “Markets are witnessing a steep fall with sell-off across global markets as the US Federal Reserve statements on the pace of economic recovery, appears to have affected investor sentiment,” Aamar Deo Singh, Head Advisory at Angel Broking, told Financial Express Online.

Singh added saying that after the spectacular rally since March, markets are witnessing profit-booking, which anyways is a good opportunity to identify and invest in quality stocks. “However, we could witness volatility in coming days in case the COVID-19 cases continue to spike, the world over,” Singh said. Today, broader markets were also performing in line with the frontline indices. BSE MidCap index fell 2.21 per cent or 314 points while SmallCap index lost 2.27 per cent or 329 points.

The analyst at Reliance Securities said that the markets are in the corrective phase after five months of sharp outperformance. The global markets have also witnessed a sharp sell-off in the past one week which is in turn putting pressure on other markets as well. Vikas Jain, Senior Research Analyst at Reliance Securities said that the dollar index has started moving upwards from its long term support levels of 92 putting pressure on commodities and emerging markets. “Reclassification of multi-cap funds will witness selling pressure in large caps and valuations were above the long term averages,” Jain added.

11068-10938 very crucial support zone for Nifty

Technical analysts believe looking at slightly longer time-frame charts, the zone of 11068-10938 is the very crucial support zone for Nifty. These levels are 100-week moving average and 50-week moving average, respectively. “We just tested the 50-Week MA today. I expect the markets will give some mild technical pullback from these levels because of two reasons. One, there is a near-vertical fall of nearly 400-500-odd points over previous sessions; and two, this support zone which exists on the weekly charts should not be taken out without any mild support even once,” Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst, Gemstone Equity Research & Advisory Services, told Financial Express.

Vaishnav also added saying that if the technical pullback occurs on the expected lines, then Nifty may test 11070 and 11100 levels. If the 50-week moving average is taken out, it might reopen some lower supports that come in at 10800 and 10710.

Indian share market is liquidity-driven market

Vishal Wagh, Head of Research, Bonanza Portfolio Ltd said that the Indian market is a liquidity-driven market. In fact post COVID-19, the fundamentals have deteriorated and the market still continued to rally on the back of liquidity push in the market. “Now, with the FED meeting outcome, one thing is clear that there will be lesser growth in the next couple of years. Indian markets are the costliest market as far as price to equity is a concern,” Wagh added saying that a correction is on the expected line.

From a technical point of view, Nifty has created lower high lower low chart formation and all major moving averages have been broken. “Closing below 11000 levels for a couple of days will bring further panic in the market which may lead Nifty towards 10600-10660 levels,” he said.