Nifty 50 Index forms risky pattern as foreign investors dump

The Nifty 50 Index has crashed into a correction this year as foreign and local investors continued selling and as energy prices soared. The index, which tracks the biggest Indian companies, dropped to INR 22,820, down by over 13% from its highest point this year.

Nifty 50 Index drops as foreign investors sell and energy prices jump 

Indian stocks continued their sell-off on Monday as crude oil and natural gas prices soared. Brent, the global benchmark, jumped to $115 on Monday, while the West Texas Intermediate (WTI) hit $101. The two have jumped by over 90% and 78% this year.

Crude oil prices may keep rising in the coming weeks now that the Iran war has taken a new twist. Houthis have already entered the theater, while Donald Trump has sent thousands of troops to the region. Houthis have threatened to block oil passage in the Red Sea, a move that will affect the Indian economy.

India’s economy is highly exposed to the ongoing Iran war because it imports most of its oil from the Middle East. Soaring oil prices are also leading to higher inflation, which may push the Reserve Bank of India (RBI) to hike interest rates. 

Indeed, data shows that the ten-year yield jumped to 6.94% from last year's low of 6.129%. Also, the five-year yield has jumped to 6.665% from this year’s low of 6.3%. 

Data shows that foreign investors continued dumping Indian shares this year. They have dumped nearly $12 billion this month, a trend that may continue in the foreseeable future as risks continue rising.

The selling is also happening as the Indian rupee retreats. Data shows that the USD/INR jumped to a high of 94.90, up by over 4.5% this year, and is up 30% from its lowest level in 2021.

Most companies in the Nifty 50 Index have slumped this year. IT consulting companies like Wipro, Tata Consultancy, and Infosys stocks have slumped by over 25% this year and are down by over 20% in the last 12 months. 

The other top laggards in the Nifty Index this year are companies like ITC, Maruti Suzuki, HDFC Bank, Jio Financial Services, Trent, Asian Paints, Adani Enterprises, and HDFC Life Sciences.

On the other hand, companies like Oil & Natural Gas, NTPC, Coal India, Power Grid, and Tata Steel were among the top gainers in the index this year.

Nifty Index technical analysis as a double-top forms 

Nifty 50 Index chart | Source: TradingView 

The weekly timeframe chart shows that the Nifty 50 Index has slumped in the past few weeks, moving from a record high of INR 26,276. It formed a double-top pattern whose neckline is at INR 21,750, its lowest level in April last year. A double-top is one of the most common bearish reversal signs in technical analysis.

The index has already moved below the 50-week and 100-week Exponential Moving Averages (EMA), a sign the bears are in control. Also, it has dropped below the weak, stop & reverse part of the Murrey Math Lines tool.

Therefore, the most likely Nifty 50 Index is bearish, with the most immediate target being at INR 21,750, its lowest level in April last year. A drop below that level will point to more downside, potentially to INR 20,000.