F&O Talk | Nifty Trades in Tightest Weekly Range Since Nov 2023, ends flat in holiday week. Sudeep Shah explains what’s ahead

Markets posted modest gains in a holiday-shortened week, continuing their consolidation trend. After opening on a strong note, benchmark indices remained range-bound in subsequent sessions amid mixed global signals and low year-end trading volumes. The Nifty closed at 26,042.30, while the Sensex ended at 85,041, indicating a cautious but steady market tone.

Market sentiment was influenced by a mix of domestic macro cues and global developments. India signed a comprehensive Free Trade Agreement (FTA) with New Zealand, reinforcing its Indo‑Pacific outreach and efforts to diversify exports. On the macroeconomic front, growth in the eight core infrastructure sectors slowed sharply to 1.8% in November, pointing to a near-term easing in industrial activity.

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 is ending the week with losses, and the weekly candle shows a classic Hammer formation. While the "Santa Rally" seems to have lost steam, the index is hovering near 26,050. Is this a sign of a "reversal" or just holiday-thinned consolidation before the January effect kicks in?

During the past week, the holiday-induced slowdown was clearly visible on Dalal Street, as the benchmark index Nifty traded within a narrow range of just 227 points — the tightest weekly range recorded since November 2023. During the week, the index scaled a high of 26236 before witnessing a mild throwback. Despite this brief retracement, Nifty managed to close the week with a marginal gain of 0.29%. On the weekly chart, the index formed a Gravestone Doji candle, reflecting hesitation at higher levels amid subdued participation.

A notable highlight of the week was India VIX slipping to its lowest-ever weekly close, indicating an extreme compression in volatility and a growing sense of calm among market participants. Historically, such extended low-volatility phases often precede a sharp directional expansion, making the current quietness in the market far more meaningful than it appears at first glance.

While the frontline indices remained largely range-bound over the past few sessions, the broader market continued to outperform. The Nifty Smallcap 100 index witnessed a strong pullback rally, driven by sharp recoveries in several previously beaten-down small-cap stocks. Additionally, selective pockets such as Railways, CPSE, and PSE stocks staged a notable rebound, suggesting that buying interest is gradually shifting beyond the headline indices.

Going ahead, the 26,200–26,250 zone is expected to act as a crucial resistance band for Nifty. A sustained move above 26250 could pave the way for a sharp upside rally towards 26,500, followed by 26,650 in the short term. On the downside, the zone of 25,900-25,850 will act as important support for the index.

Nifty is currently oscillating around its 10 and 20 DEMA (Daily Exponential Moving Average). Does this technical resilience suggest that the "buy-on-dips" strategy is still valid despite the lack of momentum?

Nifty’s current behaviour—oscillating around its 10 DEMA and 20 DEMA—reflects underlying resilience despite the absence of strong momentum. This kind of price action typically indicates that short-term dips are being absorbed and that buyers are still defending key support zones. In our view, as long as the index continues to hold above the 25850 level, the broader structure remains constructive, and traders can continue to adopt a buy on dips approach. Any sustained trade above this support zone should keep the short-term bullish bias intact, even if momentum indicators remain subdued in the near term.

With 2025 drawing to a close, the focus shifts to the next year. What are the realistic targets for Nifty in 2026? Are we looking at a 28,000+ level, or will high valuations cap the upside?

From a technical standpoint, Nifty continues to maintain a strong structural foundation, and its medium term trend remains firmly upward as long as the index sustains above the 25,500–25,400 support zone. This area has emerged as a critical demand pocket, and holding above it keeps the broader higher high, higher low formation intact. As a result, the current setup suggests that the index is well positioned to extend its upward trajectory in 2026. Based purely on price structure and momentum dynamics, Nifty is likely to gradually move toward the 27,500 mark in the medium term. While valuations may act as a moderating factor at higher levels, the technical landscape at this stage does not signal any major trend reversal, implying that the upside remains achievable as long as key supports are defended.

Bank Nifty has been a laggard this week, and is currently testing its 20-day EMA near 59,100. With private lenders like ICICI and Axis showing selective buying but PSU banks easing, what are the make-or-break levels for the banking index to lead the next leg of the rally?

Last week, the banking benchmark Bank Nifty traded within an exceptionally narrow band of just 531 points, marking its lowest weekly range since the last week of August 2024. On the weekly chart, the index formed a small-bodied candle, clearly indicating indecision in the market and a lack of strong commitment from both bulls and bears.

The index has been consolidating for the past several sessions, and this prolonged sideways movement has started to impact the short-term trend structure. Both the 20-day and 50-day EMAs have begun to lose their characteristic curvature, reflecting the diminishing momentum in the short term. Meanwhile, the daily RSI has been oscillating sideways for 13 consecutive trading sessions, further highlighting the ongoing phase of trend fatigue and range-bound behaviour.

Going ahead, the zone of 58,700–58,600 is expected to act as a key support area for the index. On the upside, the 59,400–59,500 zone remains a crucial resistance band that Bank Nifty must convincingly surpass to regain directional strength. A decisive breakout on either side of this well-defined range is likely to set the stage for the next meaningful trending move in the index.

Structurally, the headline index ended in the red. Midcaps and Smallcaps have consistently outperformed the Nifty 50 this month. Does this "bottom-up" strength indicate a healthy bull market, or is it a sign of "froth" in the broader space?

Structurally, while the headline Nifty index ended in the red, the broader market continued to showcase a contrasting picture. The Nifty Midcap 100 finished the week on a flat note, forming a small-bodied candle with an upper shadow on the weekly chart—an indication of mild supply pressure at higher levels and a lack of clear directional bias.

In comparison, the Nifty Smallcap 100 delivered strong outperformance, closing near the 17,700 mark with a robust weekly gain of 1.75%. More importantly, the index has moved above its 20-day EMA and is currently oscillating around its 50-day and 200-day EMAs, signalling a clear improvement in short term momentum. The ratio chart of Smallcap 100 versus Nifty has also witnessed a smart rebound from a crucial support zone, highlighting renewed relative strength in the small-cap universe.

Taken together, this “bottom up” resilience points to a structurally healthy undertone rather than excessive froth. The Midcap index faces a key hurdle near the 60,900–61,000 zone, with meaningful support at the 50-day EMA region of 59,900–59,800, while the Smallcap index is likely to encounter resistance around 17,800–17,850 and find immediate support near the 17,550–17,500 zone.

As long as these support zones hold, the broader market strength appears more aligned with a healthy bull market than an overextended, frothy setup.

Volatility (India VIX) is low, but direction is missing. Aside from the upcoming Q3 earnings season in Jan, could a potential US-India Trade Deal or any other reason be the "solid direction" trigger that the market is waiting for?

Low volatility with no clear direction reflects market indecision rather than complacency, suggesting the market is waiting for a strong directional trigger. Four key factors are likely to determine when that move emerges.

First, FII positioning remains cautious. The long–short ratio has stayed below 20% for the past few months, indicating FIIs are heavily skewed toward short positions. Any meaningful short covering could quickly bring back momentum to the market.

Second, the Q3 earnings season in January will be crucial. While earnings alone may not spark a trend, clear surprises in margins or guidance can help validate current valuations.

Third, as we approach the Union Budget, speculation is expected to rise, with theme-based moves around capex, infrastructure, railways, defence, and manufacturing gaining traction.

Finally, a potential India–US trade deal, if backed by concrete policy action, could act as a macro confidence trigger by improving visibility on trade flows and foreign investments.

Ola has been a buzzing stock lately. However, it is still near its lifetime lows. What would you advise the IPO investors?

Ola has been in focus recently, but from an investment perspective, price action and fundamentals both call for caution. After a sharp 67% pullback rally between late August and early September, the stock failed to sustain momentum and has since erased those gains, drifting to much lower levels.

From a technical standpoint, since its high of Rs 157 on 20th August 2024, the stock has been forming a clear lower-high, lower-low structure, with no meaningful pullbacks or strong follow-through buying. This indicates persistent distribution rather than accumulation, suggesting the trend remains decisively bearish.

On the business side, concerns have also emerged. Ola’s market share in two-wheeler electric vehicle space has slipped sharply from being the market leader at the time of listing to around fifth position now, reflecting rising competitive pressure. Additionally, product quality issues, customer complaints, and execution challenges have dented brand perception, while the lack of visible improvement in profitability continues to weigh on sentiment.

For investors, the advice would be to avoid averaging blindly at lower levels. It may be prudent to wait for clear signs of turnaround, such as stabilization in market share, improvement in operating metrics, and a sustained technical base, before reconsidering exposure.

Any sectors in the limelight?

Technically, stocks from the Railway, Metal, and Auto sectors are poised to outperform in the short term, supported by strong price structures, improving momentum indicators, and sustained sectoral strength.

On the other hand, Media and FMCG counters are expected to continue their underperformance, as their technical setups still reflect weakening momentum and lack of buying interest.

Which stocks would you say are displaying strength for participation?

Technically, several stocks are displaying notable strength and appear well positioned for continued participation. These include Rail Vikas Nigam Ltd. (RVNL), Ircon International Ltd. (IRCON), Indian Railway Finance Corporation Ltd. (IRFC), RailTel Corporation of India Ltd. (RAILTEL), Titagarh Rail Systems Ltd. (TITAGARH), Titan Company Ltd. (TITAN), Gujarat Mineral Development Corporation Ltd. (GMDC), Nestlé India Ltd. (NESTLEIND), NBCC (India) Ltd. (NBCC) and Karur Vysya Bank Ltd. (KARURVYSYA), all of which are exhibiting strong technical setups and relative strength compared to the broader market.

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