Last week, Index long futures by FIIs had slipped to 1-month lows. This has continued, dragging its proportion to the shorts to 8.6, the lowest since March 2023. In fact, on that occasion, FIIs restarted their buying index future longs, translating into a rise in the index in a few weeks. The only point of difference is the fact that overall volumes across the exchange are significantly lower across assets.
The broader market has sunk
Only 20% of Nifty 50 constituents are trading above their respective 20-day SMA. In fact, no sectoral index other than FMCG has more constituents above this key MA. With Nifty not too far from its 200-day SMA, having sunk below the 50-day SMA a few days back, 54% of Nifty 500 constituents have already fallen below their 200-day SMA or the simple moving average. This suggests that the broader market has sunk faster than the Nifty.
August is usually a poor month for Nifty, but oscillators and averages have already sunk to near extremes, even as VIX remains subdued, indicating that traders may not be pricing in large falls. At least not yet.
Nifty Metal Index: Bearish breakdown signals further weakness
The Nifty Metal Index has broken decisively below its ascending trend channel on the weekly chart, forming a large bearish candle that resembles a Marubozu – indicating strong and persistent selling pressure. Technical indicators further support this bearish sentiment, with the weekly MACD on the verge of crossing below the signal line. Additionally, the index has slipped beneath the Supertrend level of 9,254, reinforcing the likelihood of continued downside.
From a derivatives standpoint, the outlook remains negative. Nearly 80% of both near-the-money and out-of-the-money call options have seen short build-up, while only around 8% of positions reflect an open interest put-call ratio below 0.5, suggesting a lack of bullish conviction. On Friday, approximately 70% of stock futures within the index experienced short additions, with 54% showing week-on-week short build-up – further confirming the bearish tone.
Among the index constituents, stocks such as Adani Enterprises, JSW Steel, Tata Steel, Hindustan Zinc, Vedanta, and Jindal Steel have either broken below their respective RSI moving averages or witnessed MACD crossovers below the signal line. These technical breakdowns point to further downside risk, and sustained weakness in these names could drag the index toward the 9,000 level, with a deeper decline possibly extending to 8,800 in the near term.
Nifty Pharma Index: Bearish signals emerge after recent high
After reaching its highest level since January 2025 earlier this week, the Nifty Pharma Index came under sharp selling pressure toward the end of the week. Technically, the index has broken below key support levels, including the Supertrend level at 22,420 and the ascending trendline support at 22,580 on the daily chart. The MACD has also crossed below the signal line, reinforcing the bearish setup.
On the weekly chart, the index failed to close above the Supertrend level of 22,644, and early signs of exhaustion are visible in the MACD histograms, adding to the weakening outlook. Derivatives data also reflects a negative sentiment. Nearly 85% of near out-of-the-money put options saw long positions, while over 90% of near out-of-the-money call options experienced short build-up. Furthermore, around 90% of stock futures within the index saw short additions on Friday, with 85% showing week-on-week short build-up.
Major constituents such as Cipla, Lupin, Dr Reddy’s, Sun Pharma, Divi’s Labs, Zydus Lifesciences, Torrent Pharma and Aurobindo Pharma. These collectively account for about 70% of the Pharma Index and have either broken below critical support levels or seen MACD signal line breakdowns. This increases the likelihood of further downside, potentially dragging the index toward 21,890, and in a more bearish scenario, down to 21,500.
First published in Financial Express
