F&O Talk | Nifty cracks 5% in 11 days: Is this just the beginning of a deeper slide? Sudeep Shah weighs in

Indian equity markets ended the week on a tepid note, pressured by profit-booking, persistent foreign institutional investor (FII) outflows, and renewed concerns over global trade disruptions linked to U.S. tariff rhetoric. Early optimism, driven by earnings upgrades at Infosys and selective gains in banking counters, was short-lived, as sentiment turned negative following underwhelming results from sectoral peers and broader earnings disappointments.The backdrop of rising geopolitical tensions, particularly the U.S. administration’s aggressive stance on Greenland and threats of retaliatory tariffs, added to the unease, triggering a broad-based sell-off across domestic equities.Global markets were initially shaken by a sharp risk-off shift after U.S. President Donald Trump issued forceful remarks about acquiring Greenland and threatened trade penalties against European nations resisting the move. Although a subsequent rollback of these threats prompted fleeting relief rallies, investor sentiment remains on edge amid the lingering uncertainty surrounding U.S. policy signals.With this, analyst Sudeep Shah, Vice President and Head of Technical & Derivatives Research at SBI Securities, interacted with ET Markets regarding the outlook for the Nifty and Bank Nifty, as well as an index strategy for the upcoming week. The following are the edited excerpts from his chat:Nifty attempted to reclaim 25,500 this week but faced sharp rejection, slipping back to the 25,200 zone. With the Budget just a week away, is this consolidation a sign of nervousness or a base-building formation?From its all-time high, the benchmark index Nifty has witnessed a sharp correction of over 5% in just 11 trading sessions, marking one of the steepest declines in the recent period. Although the index found temporary support near the 24,900 level on Wednesday and staged a minor pullback, it failed to sustain at higher levels and resumed its downward trajectory on Friday.The correction has been largely driven by heavy selling in index heavyweight stocks. On a month-to-date basis, Reliance Industries has declined by nearly 12%, HDFC Bank by 7.58%, ITC by around 20%, L&T by 8.32%, and Bharti Airtel by nearly 6%, underscoring the broad-based weakness within frontline stocks.Most notably, the index has slipped below its 200-day EMA for the first time since April 2025 and has formed a sizeable bearish candle on the weekly chart. Momentum indicators continue to reflect bearish undertones, with the weekly RSI hovering near the 45 level, which was the lowest reading since April 2025 and trading below its 9-week average.The pain is even more pronounced in the broader market. Both the Nifty Midcap 100 and Nifty Smallcap 100 have witnessed sharp corrections over the past week. Notably, the Nifty Midcap 100 has slipped below its 200-day EMA, while the Nifty Smallcap 100 is currently trading over 7% below its 200-day EMA, highlighting strong bearish momentum across the broader space.Going ahead, the 25,400–25,450 zone is expected to act as a crucial resistance for Nifty. As long as the index remains below 25,450, further downside cannot be ruled out, with immediate support seen near 24,800, followed by 24,600 in the short term.Reliance delivered strong revenue growth in Q3, but the bottom line was virtually flat. Since the stock failed to energise the market, do you think the 'heavyweight' drag will continue until the Budget?Despite strong Q3 revenue growth, Reliance’s bottom line offered little surprise, and the stock failed to provide market leadership. Technically, early January itself showed signs of fatigue, with a clear RSI negative divergence where prices made a higher high while RSI made lower highs. This was followed by a breakdown of the upward-sloping trendline, indicating a shift in the short-term trend.Since the January 5 high of 1,612, the stock has corrected 14% and is now trading below both its short-term and long-term moving averages. The ADX is rising, signalling a strengthening bearish trend. Momentum remains weak, with the RSI near 26 and the MACD well below the zero line and still declining.Overall, the drag is likely to continue as long as the stock remains below the 1,440–1,450 zone.HDFC Bank beat estimates with solid Q3 numbers, yet the stock barely moved. If even good earnings can’t trigger a rally in our largest private bank, what trigger is the market actually waiting for?Despite beating estimates in Q3, HDFC Bank failed to attract meaningful buying interest, highlighting the market’s reluctance to reward earnings alone. On January 6, the stock broke decisively below the 970–975 support zone with a gap-down opening and simultaneously slipped below its 200-day EMA, a key long-term support. This combination of price breakdown and indicator confirmation signalled a potential short-term trend reversal.Since then, the stock has continued to drift lower and has clearly underperformed its private-sector peers such as Kotak Bank, Axis Bank, Federal Bank and AU Bank. Momentum remains weak, with the RSI near 24, while a rising ADX indicates strengthening bearish trend intensity.Beyond near-term triggers, the technical structure is unlikely to improve meaningfully as long as the stock remains below the 945–950 resistance zone.IndiGo shocked the street with a 77% drop in Q3 profits this week. With aviation stocks looking fragile, would you advise staying away from this sector entirely right now?IndiGo’s sharp 77% QoQ drop in Q3 profits has clearly unsettled the street. The numbers were impacted by a combination of engine-related groundings, higher operating costs and supply-chain disruptions, which weighed on capacity and margins through the quarter. While management commentary suggests operations should gradually stabilise, any meaningful improvement is likely to be back-ended over the next two quarters rather than immediate.From a technical standpoint, the stock has been under sustained selling pressure since early December and continues to trade below its key moving averages. On December 11, IndiGo bounced from the 4,630–4,640 long-term support zone, but failed to sustain the pullback and slipped back to those levels. This zone remains critical. A decisive breakdown could accelerate selling. As long as the stock trades below 4,900, the broader trend remains bearish.A similar weak structure is visible in SpiceJet, suggesting sector-wide fragility. For now, selective caution is advised rather than aggressive exposure.We saw a clear divergence this week: Private banks were sleepy while PSU Banks rallied nearly 5%. Is this a pre-Budget bet on government capex, and should we shift focus to PSUs?From a technical standpoint, PSU banks have clearly been the stronger pocket of the market in recent weeks. The Nifty PSU Bank index is outperforming the frontline indices and is also trading comfortably above its key moving averages, indicating a well-supported trend.In contrast, the Nifty Private Bank index continues to underperform, with price action remaining sluggish. The ratio chart of Nifty PSU Bank versus Nifty Private Bank is forming a healthy sequence of higher highs and higher lows, which reinforces the strength of the PSU banking space on a relative basis.Based on this setup, PSU banks are likely to extend their outperformance in the near term, regardless of whether the move is pre-Budget positioning or part of a broader structural rotation.FIIs have pulled out over Rs 30,000 Crore in January alone, showing no signs of stopping. Can domestic flows (DIIs) continue to hold the 25,000 floor if this selling intensity persists?Whether DIIs can decisively defend the 25,000 level remains uncertain, but recent history suggests they can prevent a sharp breakdown. Since July 2025, persistent FII selling ĺhas been effectively countered by strong domestic inflows. While FIIs have sold nearly Rs 2.24 lakh crore, DIIs have absorbed much more - around Rs 4.85 lakh crore, largely cushioning the impact.This structural shift is why heavy FII selling, which earlier destabilised markets, is no longer a shock factor. Despite tariff-related concerns, the unwinding of the yen carry trade and geopolitical risks, Nifty is down just about 5% from its highs. The real pain, however, has been beneath the surface, with midcaps and smallcaps underperforming sharply.With mutual funds sitting on sizeable cash, DIIs are likely to step in on attractive valuations, limiting downside. That said, sustained FII participation remains crucial for the market to reclaim momentum and scale new highs.President Trump's comments about a potential 'good trade deal' with India offered a brief relief rally this week. How much weight should traders give to these geopolitical signals versus domestic earnings?Geopolitical headlines like President Trump’s comments on a potential good trade deal with India can certainly drive short-term sentiment and relief rallies, especially in an environment where positioning is light and risk appetite is fragile. Traders should acknowledge these signals, but also recognise that such statements are headline-driven and fluid, with limited durability unless followed by concrete policy action.Domestic earnings, on the other hand, continue to carry greater weight for trend formation. They shape expectations around growth, margins and sector leadership, and determine where sustained capital flows- both domestic and foreign are likely to emerge. The recent market behaviour shows that even positive global cues fade quickly when earnings disappoint or guidance remains cautious.In the near term, geopolitical cues may set the direction for opening moves, but earnings and domestic macros will decide follow-through. Traders are better off using global news tactically, while anchoring their medium-term view around earnings quality and sector-specific performance.The market seems trapped in the 25,000–25,500 box as we count down to the Budget. Would you recommend entering fresh positions now, or is it better to sit on cash until the Finance Minister speaks?Given the current technical setup, both the frontline indices and the overall market breadth have weakened considerably, indicating a lack of strength across major segments of the market. The volatility is expected to pick up ahead of the Union Budget; this is not an ideal environment to initiate fresh long positions.At this stage, it is more prudent to stay on the sidelines, preserve cash, and wait for clearer directional cues, ideally after the Finance Minister’s Budget announcement provides clarity on policy direction and market sentiment.With this market action going on, which are the safe sectors for investors to seek some comfort?From a technical perspective, Nifty Realty, Consumer Durables, Financial Services, Healthcare, Automobiles, Capital Markets, India Tourism, Media, Oil & Gas, and Pharma indices are expected to continue their relative underperformance in the short term. Most of these sectors are trading below their key short-term moving averages, and momentum oscillators remain in bearish territory. The lack of meaningful demand at higher levels and weak breadth within sector constituents further reinforce the probability of continued weakness.In contrast, Nifty IT and Nifty Metal indices are displaying clear signs of outperformance compared to the frontline benchmarks. Both sectors are holding firmly above their short-term and medium term moving averages.Which stocks would you recommend for our investors/traders ahead of the budget?Technically, Tech Mahindra, HCL Tech, Hindustan Uniliver, Indian Bank and JK Tyre are looking good.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)