Sensex, Nifty 50 outlook darkens: technicals point to more pain

on Mar 3, 2023
  • The Sensex and Nifty 50 indices have plunged in the past few days.
  • Technical analysis points to Nifty 50 index pulling back to 17,000 INR.
  • There are concerns about India’s economy and the Fed.

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The Sensex and Nifty 50 indices pulled back on Friday as concens about the Indian economy continued. Sensex retreated by 500 points to 59,423 INR while the Nifty 50 dropped by 130 points to 17,450. In all, the two indices have dropped by more than 8.45% from their highest levels this year, meaning that they are slowly nearing a correction.

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Indian economic slowdown

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The Nifty 50 index has pulled back because of three key reasons. First, there are worries that the Indian economic growth has peaked. As I wrote in this article, the Indian economy grew at a slower pace in the fourth quarter as the remarkable comeback experienced earlier in the year faded. As such, this slowdown could hit some of the constituent companies that did well in 2022.

Second, this decline is in line with the performance of global equities. A look at most indices shows that they have all pulled back. In Europe, the DAX and FTSE 100 indices have all retreated from their record highs. Similarly, in Asia, giant indices like the Hang Seng and Nikkei 225 have all pulled back. 

The same thing is happening in the United States, where the Nasdaq 100 and Dow Jones indices have declined. This performance is likely because of the extremely hawkish central banks, which has led to a substantial comeback of bond yields. In the US, the 10-year yield crossed the 4% resistance level while the 2-year has moved to above 5%.

Finally, the Sensex and Nifty 50 have pulled back because of the uproar about Adani Group. Adani has been accused of using shell entities to manipulate its stock in the country. A supreme court bench is now reviewing these allegations.

Many Nifty 50 index stocks are in the red this year. Adani Enterprises share price has plunged by 58% while Adani Ports has fallen by over 23%. Other worst-performers are Cipla, HDFC Life, Bajaj Finance, SBI, and JSW Steel among others. On the other hand, the best-performing stocks in the index are ITC, Tech Mahindra, and Tata Motors.

Nifty 50 index forecast

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Nifty 50

NIFTY chart by Tradingview

The daily chart of the Nifty 50 index looks dire. It is hovering near the lowest level since October 13 last year. The index has also dropped below the important support level at 18,104, the highest point on September 15. At the same time, the 100-day and 50-day moving averages have made a bearish crossover while oscillators have retreated. It is also along the 38.2% Fibonacci Retracement level.

Therefore, the Nifty index will likely continue falling as sellers target the 50% retracement level at 17,000 INR. This price is about 2.50% below the current level.

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