Market Summary

Indian equity markets ended the week on a cautious note, extending their recent corrective phase as elevated crude oil prices, rising global bond yields and persistent geopolitical uncertainty weighed on investor sentiment. Markets remained volatile, with benchmark indices recovering during the week before ending Friday largely flat as investors continued to assess the global risk environment.

For the week, the Nifty declined around 0.47% to close at 24,252, while the Sensex fell nearly 0.60% to settle at 77,540.83. In contrast, the broader market remained relatively resilient, with the SmallCap index gaining around 1.2%, while the MidCap index declined marginally.

Key Market Drivers

Geopolitical developments and elevated crude oil prices remained the dominant drivers of market sentiment. Ongoing tensions in West Asia continued to raise concerns over potential disruptions to global energy supplies, keeping crude prices elevated. Rising global bond yields also reduced expectations of aggressive monetary easing, prompting a more cautious approach towards risk assets. Investors are therefore closely monitoring the US Federal Reserve’s policy outlook, particularly ahead of the Jackson Hole symposium, where monetary policy guidance is expected to remain a key global market catalyst.

On the domestic front, economic indicators remained relatively resilient. India’s infrastructure output increased 5.4% year-on-year in July, supported by strong growth in cement, coal, electricity and iron ore production. However, contractions in crude oil, fertilisers and natural gas production indicate that the recovery remains uneven across sectors.

Monsoon progress also remained a key monitorable, with kharif sowing continuing to lag historical averages in several major agricultural regions. Delayed and uneven rainfall has heightened concerns over food inflation and rural demand, making rainfall trends and potential policy measures important for the market outlook.

The latest PMI data presented a mixed picture. India’s private-sector activity improved marginally in August, with the Composite PMI rising to 54.6 from 54.3 in July, primarily supported by services. However, manufacturing activity moderated, indicating some pressure on industrial demand and business conditions.

Sectoral Snapshot

Sectoral performance remained mixed, with defensive positioning and stock-specific buying dominating market activity. Realty, metal and banking performed relatively well, supported by improving sentiment towards these segments.

In contrast, IT stocks remained under pressure, declining around 2.6% during the week amid concerns over US inflation, elevated bond yields and the global technology spending environment. FMCG and energy stocks also remained subdued.

Key Events to Watch

The coming week is expected to remain sensitive to global monetary policy, crude oil prices and geopolitical developments. Investors will closely monitor the Jackson Hole symposium, particularly comments from the US Federal Reserve Chairman, for indications on the future trajectory of interest rates. US PCE inflation, GDP estimates, durable goods orders and consumer confidence will also provide important clues on the strength of the US economy and the Fed’s policy outlook.

On the domestic front, investors will track crude oil prices, rupee movements, foreign institutional flows and domestic liquidity conditions. Developments in monsoon progress, inflation expectations and economic activity will also remain important in assessing the sustainability of domestic growth.

Developments in West Asia and any further disruption to energy supplies will remain critical monitorables, particularly given their implications for inflation, the currency and corporate profitability.

Technical Outlook

Nifty

The Nifty witnessed heightened volatility during the week but recovered from lower levels, indicating buying interest on declines. The index remains in a broader consolidation phase following the recent correction, with its ability to sustain above the psychological 24,000 level remaining important for maintaining the underlying structure.

Immediate support is placed in the 24,000–23,800 zone, followed by stronger support near 23,650. On the upside, the 24,400–24,600 zone remains the key resistance area. A decisive breakout above this range could trigger a fresh recovery, while failure to cross the zone could keep the index range-bound.

Bank Nifty

Bank Nifty continued to demonstrate relative strength and remained one of the better-performing segments during the week. The index witnessed renewed buying interest at lower levels and continues to hold above its important medium-term support zone.

Immediate support is placed around 56,000–56,500, while the 58,000–58,300 zone remains the key resistance area. A sustained move above 58,300 could trigger the next leg of the recovery towards 58,800–59,000. Conversely, a decisive breach below 56,000 could weaken the short-term structure.

Market Breadth

Market breadth remained relatively resilient despite weakness in the benchmark indices. The SmallCap index outperformed during the week, gaining around 1.2%, while the MidCap index remained broadly stable. This divergence suggests that domestic liquidity continues to support selected stocks despite a cautious institutional environment.

The resilience of the broader market indicates that investors are not adopting an indiscriminate risk-off approach. Instead, participation remains concentrated in companies with stronger earnings visibility, improving business prospects and relative strength. Sector rotation and stock-specific opportunities are therefore likely to remain important drivers in the near term.

Strategy Ahead

The market is likely to remain volatile in the near term as geopolitical uncertainty, elevated crude oil prices and global bond yields continue to influence investor sentiment. While domestic economic fundamentals remain relatively supportive, external factors are likely to have a greater bearing on the direction of Indian equities.

Investors should maintain a selective approach and focus on companies with strong earnings visibility, healthy balance sheets, sustainable cash flows and improving relative strength. Banking, financial services, infrastructure, capital goods, defence, metals and select healthcare stocks appear relatively better positioned, while caution is warranted in sectors vulnerable to higher crude prices and global demand uncertainty.

Given the prevailing volatility, traders should avoid aggressively chasing prices and instead use meaningful declines to gradually accumulate fundamentally strong companies. Disciplined position sizing, prudent risk management and a stock-specific approach are likely to remain critical until greater clarity emerges on global monetary policy, crude oil prices and geopolitical developments.

Ajit Mishra – SVP, Research, Religare Broking Ltd.