Trade Setup for June 5: Nifty sets sights on RBI policy for next directional move; 23,500 remains key

After staging a sharp recovery in the previous session, the Nifty began Thursday's trade on a weak note, opening with another gap-down. However, buying interest emerged once the index approached the key support zone of 23,150-23,200, helping it erase early losses and move into positive territory.

The benchmark witnessed some intraday volatility thereafter but managed to hold on to its gains and settled near the day's high at 23,416, ending the session marginally higher by 0.05%.

The recovery from the crucial support area, which coincides with the upside gap formed on April 8, indicates that buyers continue to defend lower levels despite prevailing uncertainty.

Among the Nifty constituents, Titan and Eternal led the gains, while Infosys and Bajaj Finserv were among the top laggards. Sectorally, Nifty Media and Nifty Consumer Durables outperformed, whereas Nifty Metal and Nifty Cement ended as the weakest pockets of the market.

The broader market also remained resilient, with both the Nifty Midcap 100 and Nifty Smallcap 100 indices closing in the green.

According to Siddhartha Khemka of Motilal Oswal, Indian equities are likely to remain range-bound in the near term amid a mix of domestic and global triggers.

Investors will closely track the outcome of the RBI Monetary Policy Committee meeting on Friday, which is expected to provide guidance on interest rates, inflation, growth prospects and currency stability.

Globally, markets will continue to monitor developments in the US-Iran negotiations, as any breakthrough could ease concerns over crude oil supply disruptions. Persistent foreign institutional investor (FII) selling, however, remains a key headwind for domestic equities.

Nagaraj Shetti of HDFC Securities said the market's ability to rebound from key support levels signals the emergence of buying interest at lower levels. After forming a recent swing low near 23,150, the Nifty could extend its recovery towards the 23,900 mark over the next week. Immediate support is placed at 23,300, he said.

Sudeep Shah of SBI Securities believes the 23,550-23,580 zone will act as a crucial hurdle in the near term. A sustained move above this range could strengthen the ongoing pullback rally and open the door for a move towards 23,700. On the downside, the 23,330-23,320 region is expected to provide immediate support.

Hitesh Rathi of Angel One said traders are awaiting fresh triggers, with the RBI policy outcome likely to act as the next major catalyst for market direction.

He added that a breakout above the 23,500-23,550 resistance band could reignite bullish momentum, while a breach below the 23,150-23,100 support zone may tilt the balance back in favour of the bears.

Rathi also highlighted the 22,750-22,700 region as a strong support base, while the 23,670-23,900 zone remains a formidable resistance area that could challenge any sustained recovery.

Meanwhile, Rupak De of LKP Securities said that the Nifty continues to trade below its 20-day exponential moving average, indicating that underlying weakness persists despite the recent rebound.

According to De, the market is likely to maintain a cautious-to-bearish undertone as long as it remains below 23,500. A decisive breakout above that level could trigger a rally towards 23,700, while a fall below 23,370 may drag the index towards 23,200 and lower levels.