Nifty rally unlikely to last without broader participation, says Rahul Ghose of Hedged.in

Indian benchmark indices had a volatile session on Friday, reversing most of their intraday gains but still closing slightly higher, indicating a cautious start to the January series. The S&P BSE Sensex ended at 78,699, up by 226.6 points or 0.29%, while the Nifty 50 index closed at 23,813.40, gaining 63.20 points or 0.27%.

Rahul Ghose, Founder of Hedged.in, shared his views with ET Markets on the outlook for Nifty and Bank Nifty, highlighting key levels on the index. He mentioned that the Nifty closed the week near the 23,800 mark, and for the upcoming week, immediate support is seen in the range of 23,200-23,300. Ghose noted that the market showed indecisiveness with a neutral candle formation at the weekly close, which is common during the holiday season when market activity tends to slow down.

While the 23,200-23,300 range provides initial support, Ghose cautioned that the bounce from this level could be short-lived, with a higher likelihood of further declines. The next support levels to watch for are 22,900-22,600.

Recent market developments indicate a troubling trend. Typically, when indices approach the 200-day moving average (DMA), they stage a strong rebound, signaling a healthy market. However, the recent price action around the 200 DMA has been marked by indecisive and neutral candles, which is not a positive sign. Additionally, with the Relative Strength Index (RSI) hovering around 34-35, there is a growing likelihood of a decisive break below the 200 DMA.

Notably, Reliance Industries (RIL), which holds the highest weightage in the Nifty index, is trading well below the 200 DMA. Many other Nifty 50 constituents are also below this key level. While stocks like HDFC Bank and select IT names have helped sustain the index recently, a sustained rally cannot be driven by just a few stocks. Broad market participation is essential for a sustainable upward movement.

As for the Bank Nifty, which is currently trading above the 200 DMA, one might wonder if it's a better option. However, the positive performance of Bank Nifty is largely attributed to the outperformance of HDFC Bank. Other major banks, such as SBI, Axis Bank, and IndusInd Bank, are in a strong downtrend and are trading significantly below the 200 DMA. This suggests that Bank Nifty might eventually face pressure as well. Technically, a break below the 49,600 level could trigger a sharp decline for Bank Nifty.