Stock Market Falls for 4th Day Straight; Tomorrow Nifty Prediction

Tomorrow Nifty Prediction

Bears Maul Market: Nifty Falls, Experts Predict Volatile Expiry Day

Indian stock markets witnessed a sharp decline on May 29th, the fourth consecutive trading session in the red. Bearish sentiment prevailed, pushing the Nifty index down 0.80% to close at 22,704.70, while the Sensex fell 0.89% to settle at 74,502.90.

Market Recap:

Nifty hovered around the 22,700 mark throughout the day, with heavy call writing observed at strike prices of 23,000 and 22,800.

Put writing, indicating bearish bets, was concentrated at 22,800 and 22,700 strikes. Despite 1473 stocks advancing, the decline in 1871 stocks ultimately dragged the market lower.

Sectoral Performance:

The broader market witnessed a mixed bag. Sectors like capital goods, telecom, healthcare, metal, and power managed to close in positive territory.

However, auto, banking, FMCG, IT, oil & gas, and realty indices suffered losses ranging from 0.3% to 1%. The BSE midcap index closed marginally down by 0.4%, while the smallcap index managed a small gain of 0.2%.

Nifty’s Outlook: Short Covering vs. Volatility

Analysts anticipate a volatile trading session for Nifty on May 30th due to the monthly derivatives expiry. Here’s a breakdown of expert opinions:

• Aditya Gaggar, Director, Progressive Shares: Although the daily chart indicates a breach of Nifty’s immediate support at 22,780, Gaggar expects short covering (buying back borrowed shares) to occur tomorrow due to the monthly expiry. This could potentially push the Nifty above the triangle pattern breakout point of 22,780.

What is Short Covering?

Short covering occurs when traders who have borrowed and sold shares (short selling) are forced to buy them back to return them to the lender.

This buying activity can drive the stock price up. Short covering can be triggered by various factors, including expiry of derivative contracts, positive news about the company, or a broader market rally.

• Ajit Mishra, Religare Broking: Mishra views the recent decline as a sign of investor caution. He anticipates support for Nifty around the 22,550 level, which coincides with its 20-day exponential moving average (EMA). Given the expiry, Mishra expects high volatility and recommends limiting aggressive buying positions and adopting a hedging strategy (using financial instruments to offset potential losses).

What is a 20-Day EMA?

The 20-day EMA is a technical indicator that smooths out price fluctuations and reflects the average price over the past 20 days. It can be used to identify support and resistance levels.

By analyzing the movement of the price relative to the EMA, traders can gauge the overall trend and potential support/resistance zones.

• Rupak Day, LKP Securities: Day highlights the bearish dominance, pointing towards heavy call writing observed at higher strike prices. Based on options data, Day suggests Nifty might expire around 22,800. However, a fall below the crucial support level of 22,700 could trigger further weakness. Day identifies immediate resistance for Nifty at 22,800.

Understanding Options Data:

Options contracts grant the right, but not the obligation, to buy (call option) or sell (put option) a stock at a specific price by a certain date.

Options data analysis helps identify investor sentiment and potential price movements based on the number of open contracts at different strike prices. High call writing at higher strike prices suggests a bearish bias, as investors are betting on the price falling below that level.

Conversely, high put writing indicates a bullish outlook, with investors anticipating a price rise.

Bank Nifty’s Performance:

The Bank Nifty index, a benchmark for banking stocks, also witnessed a decline, closing at 48,400, close to its 21-day EMA.

This suggests a potential shift in investor sentiment towards banking stocks. If Bank Nifty fails to hold above this level, selling pressure could intensify, pushing it further down to 48,000. Analysts identify 48,400 as the current support level and 49,000 as the new resistance for Bank Nifty.

Global Cues and Upcoming Events:

Apart from the derivatives expiry, global cues will also influence the market’s direction on May 30th. Investors will be closely watching developments like:

• US Federal Reserve Meeting: The US Fed is scheduled to meet on June 14-15th, and any indications (regarding interest rate decisions or economic forecasts) from the Fed can have a significant impact on global markets, including India.

• Geopolitical Tensions: Ongoing geopolitical tensions, such as the war in Ukraine or any new developments, can create uncertainty and impact investor risk appetite, potentially leading to market volatility.
• Crude Oil Prices: Fluctuations in global crude oil prices can influence the Indian market, particularly impacting sectors like transportation and energy.

Investor Strategies for Volatile Markets:

Given the anticipated volatility surrounding the expiry and global factors, here are some strategies investors can consider:

• Staggered Investment: Instead of investing a lump sum, consider a staggered approach by investing smaller amounts periodically. This technique, known as rupee-cost averaging, can help mitigate the impact of market fluctuations and potentially average out the cost of investment.
• Focus on Quality: Prioritize fundamentally strong companies with a proven track record and good management during volatile periods. These companies are better equipped to weather market storms.
• Maintain Diversification: Diversify your portfolio across different asset classes like equities, fixed income, and real estate to minimize risk. This helps spread your investments and reduce exposure to any single asset class experiencing a downturn.
• Discipline and Patience: Volatility can be unsettling, but maintaining discipline and a long-term perspective is crucial. Avoid knee-jerk reactions based on short-term market movements.

Final Word:

The Indian stock market concluded May 29th on a bearish note, with major indices like Nifty and Sensex incurring losses. The upcoming monthly derivatives expiry is expected to inject volatility into the market on May 30th.

While short covering might provide some upward push, support levels remain crucial for Nifty. Bank Nifty also faces potential downward pressure if it fails to hold above its 21-day EMA.

Investors should remain vigilant of global cues like the US Fed meeting and geopolitical tensions. Employing strategies like staggered investment, focusing on quality stocks, maintaining diversification, and exercising discipline can help navigate volatile market conditions.