D-Street Ahead: Key levels for Nifty, Sensex and market outlook for next week

The Indian stock market made a notable recovery last week after facing three consecutive weeks of losses, ending the week with gains of nearly two percent. Positive global cues, such as a weaker US dollar and signs of a slight decline in foreign capital outflow, helped boost investor sentiment.

The 30-share BSE Sensex, however, slipped slightly by 7.51 points, closing at 74,332.58, after climbing to an intraday high of 74,586.43 earlier in the day. Meanwhile, the broader Nifty 50 edged up by 7.80 points, settling at 22,552.50.

Despite the weekly gains, both indices remain down by about 14% from their record highs in September 2024, reflecting the ongoing impact of slowing corporate earnings and foreign outflows. Mid-cap and small-cap stocks led the way, with gains of 2.66% and 5.5%, respectively. Reliance Industries, which had dropped to a 15-month low earlier in the week, saw a 4.1% rise by week's end following a global brokerage upgrade.

Sector Performance and Key Stocks

All major sectors closed higher, with metals showing significant strength, rising 8.6% — the best performance in nearly four years. This was driven by hopes of stimulus measures from China and its plans to cut steel output. Other notable performers included Mahindra & Mahindra, which rose 5.5% after brokerages said the potential removal of import duty on US cars would have minimal impact on automakers.

Market Outlook for Next Week

Market experts are recommending a cautious but optimistic approach, as the market faces high volatility. Stock selection should focus on companies showing relative strength and strong potential for upside.

Technically, the Nifty 50 index is facing a crucial hurdle at its 20-day Exponential Moving Average (DEMA) near 22,700. A sustained move above this level, supported by banking stocks, could see the index rise towards the 23,200-23,400 range. However, a close below 22,250 could stymie the recovery and lead to a retest of support levels between 21,800 and 22,000.

Sensex and Nifty Technical Levels

According to Amol Athawale of Kotak Securities, Nifty and Sensex have formed a reversal pattern on both daily and weekly charts, signaling a potential uptrend. Key support levels for positional traders are 22,400/74,000 and 22,300/73,700. A break above these levels could push the indices to 22,750/75,200, while further upside may take them to 22,900/75,700. However, if the market dips below these support zones, it could signal a change in sentiment, prompting traders to exit long positions.

Puneet Singhania of Master Trust Group noted that Nifty's recovery from its 100-week EMA at 22,051 could push it toward 23,100, with immediate resistance at 22,700. On the downside, a break below 22,300 could drive the index toward 22,000.

For Bank Nifty, support is found at 47,800, which aligns with its 100-week EMA. A breakout above 48,900 could drive the index toward 49,500. However, below 47,800, further downside may be likely toward 47,200.

Investment Strategy and Market Sentiment

Ajit Mishra of Religare Broking suggests maintaining a positive yet cautious stance. Stock selection should focus on companies showing strong upside potential. With volatility expected to persist due to global and domestic events, it is advised that traders limit aggressive positions and avoid adding to loss-making trades.

While large-cap stocks seem better positioned due to attractive valuations, the broader market may continue to consolidate unless earnings growth picks up. Small and mid-cap stocks are still vulnerable to corrections, with valuations stretched and earnings growth yet to materialize.

Overall, experts advise a measured approach with staggered large-cap allocations and selective mid-cap exposure. Caution is recommended in small-caps until earnings visibility improves. As the market remains volatile, investors should track crucial data points and make informed decisions based on emerging trends.

Disclaimer: Investors are advised to consult certified experts and consider their own risk tolerance before making investment decisions.