We had gone in last week pencilling in the potential for large moves, with a likely upside objective of 25,400-25,600. After briefly entering this region, Nifty’s momentum eased off but closed not far from the week’s peak, retaining hopes for extended upsides.
But we have spotted the formation of a bearish candlestick pattern being in the proximity of last month’s peaks. Hence, it is important to check if such vibes are reflected across the broad market and if we need to stick to a sector-specific approach as discussed last week.
Subdued VIX point to unpreparedness for surprises
We had also pointed out how VIX had remained low in the run-up to last week, and incidentally it has continued to dip and is presently at a record low. This in turn suggests that the market is not prepared for surprises. Momentum indicators are yet to suggest a trending nature, which in turn allows for some fluctuations.
FII unwinding of shorts yet to trigger rally
Through last week we saw FII Index Future Shorts being unwound; we also noted that the addition of longs was at a pace that appeared too subdued to spark a rally. And to top it off, Friday saw a 0.46% increase in shorts and an 8.3% reduction in longs, pointing to a potential end to the support from FIIs. Incidentally, at 25,482, FII open positions in index future longs are still less than the previous week’s peak.
Key sectoral cues
More than 55% of Nifty 500 constituents pulled back at least 1% from their respective peaks on Friday, suggesting that traders were not very hopeful of extending gains going into the new week. Friday’s soft close on the Nifty prompts us to look at how sectors are poised for the days ahead.
At 26.7%, the Nifty FMCG index has the fewest number of constituents below the 10-day SMA, while all the PSU bank and IT index stocks are trading above their respective 10-day SMA. Incidentally, the IT Index which had no stocks above the 50-day SMA at the start of the week before, now has 90% of the constituents above the same, pointing to a significant turn in fortunes in such a short time span, while also pointing to a vulnerability.
Pharma Index breakout points to further upside
After consolidating in a tight range since mid-August, the Nifty Pharma Index broke out decisively on Friday, accompanied by a Supertrend breach—signalling a resurgence in bullish sentiment.
From a derivatives perspective, nearly half of the index constituents saw fresh long positions, while 77% exhibited either long buildup or short covering. This indicates that traders are increasingly positioning for further gains.
The index is projected to advance towards the 23,000–23,300 range, supported by strength in leading stocks such as Sun Pharma, Cipla, Divi’s Laboratories, Torrent Pharma, Mankind Pharma, and Alkem Laboratories.
Realty Index breakout suggests renewed momentum
The Nifty Realty Index has recorded its first Supertrend breakout since June, marking a shift in directional momentum. The 14-day RSI is currently around 60, and the weekly RSI has crossed above its average—both technical indicators pointing to sustained strength. Additionally, the appearance of a weekly MACD exhaustion candle supports the case for a potential trend reversal.
On the derivatives front, 67% of the index constituents added long positions on Friday, with most stocks showing either long buildup or short covering on a weekly basis. This reflects growing optimism among traders.
We anticipate an initial move towards 950, with a potential extension to 975 if momentum persists. Key drivers of this rally are likely to include DLF, Lodha, Godrej Properties, Oberoi Realty, Phoenix Mills, Prestige Estates, and Sobha.
