Indian equity markets are likely to face continued pressure in the near term, with HDFC Securities urging investors to exercise caution. The brokerage firm advises against initiating new long positions until the Nifty index achieves a decisive close above the 24,000 mark. This recommendation comes amidst derivative data that increasingly favors a bearish outlook.
According to HDFC Securities, aggressive call writing, a fresh build-up of short positions in index futures, and heightened bearish bets by Foreign Institutional Investors (FIIs) all point towards potential further downside risks for the market. Market experts largely concur, noting that sentiment remains fragile ahead of the upcoming monthly expiry and the ongoing Q1FY27 earnings season.
Nifty Faces Strong Resistance at 24,000-24,200
For the coming week, HDFC Securities identifies the 24,000-24,200 range as an immediate resistance zone for the Nifty. The index recently broke below its five-week consolidation range, declining 2.33 percent last week. This correction was accompanied by a 12 percent increase in open interest in Nifty futures, signaling a significant accumulation of fresh short positions.
The brokerage highlights aggressive call writing at 24,000-24,200, reinforcing this as a strong resistance area. Furthermore, the Nifty monthly Put-Call Ratio (PCR) dropped sharply from 1.42 to 0.89, reflecting a significant weakening of market sentiment. On the downside, immediate support is seen in the 23,600-23,500 zone, where substantial put writing has emerged. However, a decisive close below 23,500 could trigger further short build-up or long unwinding, potentially pushing the index towards 23,100-23,000.
FIIs Increase Bearish Bets
HDFC Securities reported that FIIs significantly increased their bearish bets in the index futures segment last week, with net selling amounting to Rs 8,768 crore. Concurrently, open interest rose by nearly 49,700 contracts, indicating fresh short positions across both Nifty and Bank Nifty futures. In contrast, foreign investors covered some short positions in stock futures, recording net buying of Rs 2,073 crore, suggesting selective optimism in individual stocks despite a cautious stance on the broader indices.
Bank Nifty Underperforms, Key Levels to Watch
The Bank Nifty also breached its five-week trading range, underperforming the broader market with a 3.12 percent fall during the week. Open interest in Bank Nifty futures climbed by 18.77 percent, signaling aggressive fresh short creation. HDFC Securities identifies 57,000-57,500, followed by 58,000, as key resistance levels due to heavy call writing. On the support side, significant put writing has emerged at 56,000-55,500. A decisive close below 55,500 could intensify selling pressure, potentially driving the banking index towards the 54,500-54,800 range.
Defensive Sectors in Focus Amidst Broader Weakness
Amidst the cautious market sentiment, mid-cap IT stocks have witnessed a recovery driven by a combination of short covering and cash-market buying. Defensive sectors such as Fast-Moving Consumer Goods (FMCG) and low-volatility strategies continue to attract institutional flows. The broader mid-cap universe, however, shows signs of weakness, suggesting investors should remain highly selective in their stock picks.
Kruti Shah, Quant Analyst at Equirus Securities, noted, "Market sentiment is turning increasingly cautious as Nifty approaches the crucial 23,800-23,600 support zone. Derivatives positioning continues to weaken as FIIs are still carrying elevated index shorts. Overall, leverage has not yet fully reset and meaningful short covering is yet to emerge."
HDFC Securities maintains a cautious near-term stance on both benchmark indices. Until the Nifty reclaims 24,000 and the Bank Nifty sustainably moves above 58,000, the brokerage advises investors to avoid aggressive long positions and instead focus on stock-specific opportunities arising from the ongoing Q1FY27 earnings season.