Nifty 50 index has crashed, but technicals point to a surge soon

The Nifty 50 index has moved into a correction after crashing by 13% from its highest level this year. It has dropped from the year-to-date high of ₹26,265 to the current ₹22,730. It is hovering near its lowest level since June 3. So, is it safe to buy the Nifty 50 index dip or just sell the rip?

US reciprocal tariffs to hit India the most

The Nifty 50 index has dropped in the past few weeks as investors focus on the actions of Donald Trump.

Trump has already imposed tariffs on goods from top US trading partners like Mexico, Canada, and China.

He has also implemented tariffs on imported steel and aluminum. Further, he has said that he will impose reciprocal tariffs in April.

Analysts expect that India will be one of the most affected countries when these tariffs kick in because of its high tariffs on imports.

Tariffs on Indian goods would have a big impact on some Nifty 50 index companies that do a lot of business in the United States.

India sells goods worth billions of dollars to the US annually. Some of these goods are in the textile, petroleum, electrical and electronic products, and pharmaceuticals. Some of the top companies that will be affected are Reliance Industries, Tata Steel, Tata Motors, and Sun Pharmaceutical.

Narendra Modi has worked behind the scenes to please Donald Trump and prevent the country from being included in the reciprocal tariffs. He was one of the first foreign leaders to visit the US after Trump's inauguration. Also, he pledged to boost the trade volume between the two countries to $500 billion a year.

Still, it is unclear whether these measures will help to prevent tariffs from the United States. Trump has long believed that other countries, including India, were taking advantage of the US.

Indian stocks valuation reset

The Nifty 50 index has also slipped as Indian companies go through a valuation reset. At its peak, the index had a PE ratio of over 25, making it more expensive than other global indices like the Nasdaq 100 and the S&P 500 index.

The price-to-earnings multiple has now moderated slightly to about 20, meaning that it has now become a bargain compared to other indices.

The valuation of most Indian companies became stretched in 2024 as retail investors pumped these equities. Today, some of the top pumped equities, like Trent and Ola Electric have plunged from their highest levels this year.

The Nifty 50 index has retreated as the Indian rupee has jumped. The USD/INR exchange rate has dropped from the year-to-date high of 88 to 86.7. A stronger rupee hurts some companies, especially those that focus on exports.

The next key catalyst of the Nikkei index will be the Federal Reserve interest rate decision on Wednesday. Historically, the actions of the Fed tend to have an impact on US and other global stocks.

Nifty 50 index analysis

The weekly chart shows that the Nifty 50 index has pulled back from the 2024 high of ₹26,315 to a low of ₹21,988. It formed a descending channel that connects the highest and lowest swings since December last year.

On the positive side, the index has formed a falling wedge pattern, a popular bullish sign in the market.

The index has also formed a slanted bullish flag chart pattern, a popular bullish sign. Also, it has found support at the 100-week moving average, where it failed to move below.

Therefore, the Nifty 50 index will likely bounce back in the coming weeks. If this happens, the next point to watch will be at ₹26,315, the highest swing in December last year.