The Indian stock market stands at a critical juncture, facing multiple potential challenges that could trigger a significant market correction. Investors are navigating a complex landscape marked by year-end mutual fund portfolio adjustments, foreign institutional investor profit booking, geopolitical tensions, and uncertainties surrounding global economic policies.
The Nifty index faces potential volatility from factors including Federal Reserve decisions, Middle East instability, rupee depreciation, and upcoming policies by US President Donald Trump, creating an atmosphere of cautious anticipation among market participants.
Technical Analysis
Going by the Nifty 50 chart we can see that during the Indian Parliamentary elections, the Nifty dropped drastically to the levels of 21,290 post elections only to bounce back from there sharply. The Index not only recovered but also went ahead and hit a lifetime high at 26,277.
Formation of Inverse Cup & Handle Pattern
Additionally, the Nifty has broken below the 23,200 which acted as the neckline for the nverse cup & handle pattern that we can spot on the chart. This pattern signals further downside and bearish momentum.
However, this could also be a good buying zone for long-term investors as there exists multiple support for the NIfty 50.
Strong Support Levels
Support 1
The first strong support lies at Rs. 22794 which acted as a stiff resistance in April and May last year. As we know a strong resistance turns into a strong support once the market crosses above it. Therefore, 22794 could act as the first level to add some amount for the long term.
Support 2
The second strong support lies at the 22361 level which corresponds to the 78.6% Fibonacci retracement level when drawn from the lows of 21290 which was the lowest after after Indian Parliamentary Elections.
Support 3
The third and final support lies at the low of 21290 which was the low after the Indian elections and also corresponds to the last 6 months low.
What’s Causing the jitteriness in Nifty 50?
Impact of Tariffs on Global Trade
The policies proposed by U.S. President Donald Trump, particularly the introduction of tariffs on goods imported from countries like China, Canada, and Mexico, have disrupted global trade dynamics. These measures lead to retaliatory tariffs, escalating tensions between major global powers. For India, this results in shifting trade balances, affecting the country’s exports and imports. With both the U.S. and China engaged in trade wars, India could face indirect consequences, especially in sectors where competition between these two giants directly impacts Indian industries.
Tensions Between the U.S. and China
Trump’s hardline stance on China, particularly regarding Taiwan and trade practices, has created geopolitical tensions that threaten global stability. The risk of a full-blown conflict between these superpowers, while not imminent, remains a significant source of uncertainty for global markets. As a rapidly growing economy with heavy trade dependencies, India is vulnerable to these geopolitical tensions. Any escalation of the U.S.-China conflict could lead to market instability, affecting investor confidence in emerging markets like India.
Fluctuations in Oil Prices
Trump’s policy shifts, especially regarding oil production, contribute to fluctuations in global oil prices. The decision to increase domestic oil production and withdraw from international climate
agreements, such as the Paris Agreement, leads to price volatility. For India, a major oil importer, this impacts import costs, inflation, and trade deficits, creating a ripple effect on the broader economy.
Impact on the Indian IT Sector
The proposed changes to H1-B visa rules by Trump’s administration have created significant uncertainty for the Indian IT sector. As a major exporter of IT services to the U.S., these visa restrictions could limit the ability of Indian professionals to work in the U.S., potentially slowing growth in this critical sector. Consequently, investor sentiment in India’s stock markets is affected, leading to increased market volatility.
Written By: Dipangshu Kundu
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