F&O Talk: Midcaps, smallcaps stage sharp comeback, trade above key moving averages. What’s the outlook?

Domestic markets ended with gains on Friday led by strong buying action in consumer and metal stocks. Nifty surged 156.80 points or 0.65% to finish at 24,353.55. Meanwhile, Sensex rose 292.80 points or 0.38% to settle at 78,111.24.

Meanwhile, the volatility gauge India VIX ended at 17.21, down 4.86% from the last close.

Analyst Sudeep Shah, Vice President and Head of Technical & Derivatives Research at SBI Securities, interacted with ETMarkets 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:

Q: Nifty ended with 1% gains this week managing to finish above 24,200. What does the Nifty chart suggest for next week’s action and what levels will be important to watch out for?

The benchmark index Nifty is climbing higher but this time, it’s not the headline act stealing the spotlight. While the index has extended its pullback rally for the second consecutive week and closed in the green, the real momentum is unfolding beneath the surface. Broader markets have taken charge, with the Nifty Midcap 100 and Nifty Smallcap 100 staging a powerful rally and clearly outperforming the frontline index. Both indices have surged past their key moving averages, signalling strength, while the Nifty still lags below its 100 and 200-day EMA levels. Most strikingly, the Nifty Midcap 100 now stands just a stone’s throw away from its all-time high, hinting that the next big opportunity might not be where everyone is currently looking.

Coming back to Nifty, the index has been trading above its 50-day EMA level for the last three trading sessions. The 20-day and 50-day EMA have started edging higher. While the falling slope of the 100-day and 200-day EMA has slowed down significantly. The momentum indicators are also suggesting bullish momentum. The daily RSI is quoting above the 57 level and is in a rising trajectory. The daily MACD histogram suggests strong bullish momentum.

These technical factors are suggesting, the index is likely to continue its pullback rally in the short-term. Talking about crucial levels, the zone of 24650-24700 will act as crucial hurdle for the index. Any sustainable move above 24700 will lead to extension of pullback rally upto the 25000, followed by 25200 level in the short term. On the downside, the zone of 24050-24000 will act as immediate support for the index. As long as the index is trading above the 24000 level, it is likely to continue its pullback rally.

Q: Bank Nifty settled with 1% gains. What trade do you see in this index following earnings by HDFC Bank, ICICI Bank and YES Bank?

The banking benchmark Bank Nifty also ended the week on a positive note, indicating a continued pullback rally. However, over the last three trading sessions, the index has struggled to decisively cross its 200-day EMA, highlighting a phase of consolidation near a critical long-term resistance zone.

This price behaviour suggests a degree of caution among market participants, as investors appear to be awaiting clarity on the Q4 earnings outcome of key banking heavyweights, namely ICICI Bank and HDFC Bank. With both results scheduled over the weekend, a directional move may emerge post the earnings announcements.

Technically, the index continues to maintain a constructive setup as it is trading above its 20-day and 50-day EMA, indicating strength in the short-term trend. Momentum indicators also remain supportive, with the daily RSI placed above the 55 mark and trending higher, reflecting improving buying momentum.

Going ahead, the 57000–57100 zone is expected to act as a crucial resistance, as it coincides with the prior swing high as well as the 100-day EMA, making it an important supply area. A sustainable move above 57100 could lead to a further extension of the pullback rally towards 57800, followed by the 58500 level in the short term. On the downside, the 55800–55700 zone is placed as an important support area.

Q: TCS and Wipro have announced their Q4 results and HCL, Infosys will be next in line. What is your view on the IT sector and how should investors trade HCL and Infosys?

The IT Index appears to be in a consolidation phase after a sharp pullback of nearly 12% over the past month. What initially looked like a strong recovery has now transitioned into a range-bound movement over the last six sessions, with the Nifty IT Index oscillating between 32134 and 30402.

Despite this pause, the index continues to hold above its 20-day EMA, indicating underlying strength, though the 50-day EMA remains a key resistance. A decisive breakout above the 32130-32150 zone could trigger further upside momentum.

Stock-specific, both HCL Technologies (1475–1418) and Infosys (1377–1266) are mirroring this consolidation. Traders should wait for a clear breakout beyond these ranges for directional cues, as the current phase suggests a healthy pause before the next move.

Q: Oil prices have slid below the $100 mark and there is relative calmness now with the likelihood of a second round of talks beginning in Islamabad soon. Do you think the war factor is priced-in and which sectors should investors remain vary of?

The core assumption of technical analysis is that price discounts everything; news, sentiment, rumours, expectations, and earnings. In that context, the recent cooling-off in crude oil prices after peaking near $119 per barrel suggests that much of the geopolitical risk may already be priced in. Over the past seven sessions, crude has moved sideways in a $90–$104 range, with RSI flattening, indicating a pause and lack of directional bias. A decisive breakout on either side will set the next trend.

Sectorally, lower crude prices benefit downstream oil companies, while higher crude supports upstream players. However, elevated crude remains a headwind for sectors like aviation, chemicals, tyres, and paints. Since crude is invoiced in dollars, rising oil prices can strengthen the dollar against the rupee, indirectly benefiting export-oriented sectors like IT and Pharma through improved realisations. Investors should track crude movements closely as a key driver of sectoral trends.

Q: Metals and realty have shown a smart bounce back WOW with returns of over 3% by respective sectoral benchmarks. What is your view on them?

The Nifty Metal is already outperforming the frontline indices for the last couple of months. While Nifty Realty has seen a strong rebound from lower levels and ended two consecutive weeks on a positive note. Technically, both the indices are likely to continue their upward journey in the short term.

Q: Gallant Ispat, Shipping Corporation and GMDC were among top gainers this week, while Jyoti CNC, Indus Towers and Kalyan Jewellers have been big losers. What should investors do with them?

Among the top gainers, momentum remains firmly positive. Gallant Ispat has delivered a downward sloping trendline breakout, backed by strong follow-through and rising volumes. Momentum indicators like RSI and expanding histogram bars signal strength; sustaining above 810–800 keeps the bullish bias intact.

Shipping Corporation of India has also broken out of a horizontal range with healthy volumes. A positive DI crossover on ADX highlights buyer dominance, and holding above 285–280 can extend the upmove.

Gujarat Mineral Development Corporation (GMDC) mirrors this strength with a trendline breakout and rising RSI. As long as it holds above 705–700, the uptrend is likely to continue.

On the losing side, caution is warranted. Jyoti CNC Automation remains in a clear downtrend with a lower high–lower low structure and bearish MACD. A break below 685–680 could trigger further weakness.

Indus Towers has slipped below its 50-day EMA and is hovering near its 200-day EMA (409). RSI below 40 indicates weakness; a breach of 409 may accelerate downside.

Kalyan Jewellers has faced rejection near 446–452, with ADX signalling rising selling pressure. As long as it trades below 450–455, the bias remains bearish.

(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)