Indian Markets: Relief Rally Possible After Selling Pressure, Says Analyst

After three consecutive sessions of declines, Indian equity markets are navigating increased volatility and fragile investor confidence. As benchmark indices struggle to establish a firm footing, market participants are increasingly turning to technical analysis for indications of potential stabilization – or further downward pressure. While the recent breakdown is technically significant, some analysts suggest extreme short-term oversold conditions could trigger a temporary rebound. The Nifty 50, a key indicator of Indian market health, is particularly under scrutiny.

Short-Term Exhaustion and Potential for Bounce

Rohit Srivastava, Founder of Strike Money Analytics & Indiacharts, articulated this view in a discussion with ET Now, noting that the market’s oversold state presents a possibility for a “bounce back” or “relief rally.” He cautioned, however, that any such rally might be short-lived, potentially functioning as a “counter-trend move within the entire structure.” Srivastava believes this rebound, if it materializes, could offer a brief respite for investors navigating the current downturn. He did not specify a timeframe for this potential rally, suggesting it could last “a day or two or a couple of days.”

According to Srivastava’s analysis, the Nifty 50 could see a bounce back towards retesting the 24,600 level – the point of the recent breakdown – and potentially even attempt to push above that towards 25,000. A similar dynamic is anticipated for the Nifty Bank index, with a potential move towards 60,000. He emphasized that these levels would then need to be reassessed to determine if another leg down is likely to commence. This technical outlook suggests a cautious approach, avoiding aggressive selling into the current panic.

VIX Spike: Gauging Market Anxiety

Adding to the complexity of the market landscape is a sharp increase in the India VIX, often referred to as the “fear gauge.” The index, which measures market expectations of volatility, has surged past 20%, reaching 21 – a reflection of growing anxiety among investors. The VIX is calculated using S&P 500 index option prices and is a widely-tracked indicator of market risk.

Srivastava contextualized this surge, pointing to historical precedents. He noted that the VIX has previously spiked to around 22 in the past 12 months, often coinciding with events like elections or rupee depreciation. He as well mentioned instances where the VIX reached 30, indicating more serious market concerns. While the current level of 21 suggests heightened concern, Srivastava believes it doesn’t necessarily signal peak panic. He indicated that a move closer to 30 would be a stronger signal that the market has priced in maximum pessimism. He referenced previous VIX spikes in August 2024, November 2024, and April of last year, noting similar levels were reached before pullbacks.

Tactical Patience and the Geopolitical Factor

The current technical picture presents a market caught between underlying weakness and short-term exhaustion. A relief rally is possible as oversold conditions ease, but its sustainability will depend on broader factors, including geopolitical developments. Srivastava specifically mentioned the importance of the geopolitical situation, suggesting that a positive shift could bolster the market’s recovery. The Council on Foreign Relations’ Global Conflict Tracker provides ongoing analysis of geopolitical risks worldwide.

Given this uncertainty, seasoned observers are advocating for restraint rather than impulsive reactions, particularly as fear-driven selling could lead to locking in losses near short-term extremes. This cautious approach aligns with the principle of avoiding panic selling during market downturns, a strategy often recommended by financial advisors.

Implications for Investors and Market Sectors

The potential for a relief rally, as outlined by Srivastava, could offer temporary gains for investors across various sectors. However, the sustainability of this rally remains uncertain, and investors should exercise caution. The IT sector, recently experiencing headwinds, may see a temporary reprieve, while the metals sector, as highlighted in separate reporting by The Economic Times, is expected to outperform amid a weakening dollar. However, investors should remain aware of the risks associated with relying solely on short-term technical indicators.

The Nifty Bank index, also mentioned by Srivastava, is particularly sensitive to economic conditions and investor sentiment. A rebound in this index could signal renewed confidence in the financial sector, but it’s crucial to monitor underlying economic fundamentals. The India VIX, as a measure of market volatility, will continue to be a key indicator to watch, providing insights into investor risk appetite.

What to Expect in the Coming Days

For the immediate future, the market is likely to remain sensitive to both domestic and global developments. Investors should closely monitor geopolitical events, as these can significantly impact market sentiment. Tracking the India VIX will provide valuable insights into the level of fear and uncertainty prevailing in the market. A sustained decline in the VIX could indicate a stabilization of market conditions, while a further increase could signal continued volatility. The next few trading sessions will be crucial in determining whether the market can sustain a relief rally or if further declines are in store.