Nifty Outlook for October 23: Index resumes lower highs, lower lows formation with 22,550 the key level

When the market moves the way it did on Thursday, it should be known as a "Graveyard" session, not because of the extent of the fall, but simply because of the way the session turned out.

After the initial capitulation in the first hour, the Nifty 50 reversed course in the next 60 minutes, only to capitulate again within the next 20 minutes. This is a trend that followed through the remainder of the session as well as nobody could predict where the next tick would take the index to.

What this recent sell-off has done, is expose two things: One, the recovery over the last two weeks almost seems distant memory, and two, the pain in the broader markets is much more significant than what appears on the screen and even when compared to the Nifty's fall this week.

Another fallout of this sell-off has been the fact that the Nifty has started to make lower highs again on the charts over the last two sessions. The streak of lower lows extended for the fourth straight day on Thursday.

Thursday's session was no different for the broader markets as they continued to tumble a lot more in comparison to the Nifty. 79 stocks on the Midcap index, 75 on the Smallcap, and 362 on the Nifty 500 index ended the session with losses on Thursday, marginally better than Wednesday if not more, but steeper than the Nifty nonetheless. The Midcap index is down six straight sessions and is down 3% in a week for the second time this month. Its worse for the Smallcap index, as it is on course for its worst week since the start of the year.

Friday's session will see earnings reaction from companies such as Colgate-Palmolive, CreditAccess Grameen, HPCL, Rallis India, Swiggy, Sagility, Adani Total Gas, among others.

The last day of the week will also be the heaviest in terms of earnings, with Atul, BPCL, Adani Power, CG Power, Coforge, CSB Bank, Dr. Reddy's, Godrej Properties, Infosys, IndusInd Bank, Jana Small Finance Bank, JSW Steel, NESCO, Newgen Software, Oracle Financial, Shree Cement, UTI AMC, Sterlite Tech, Tata Motors CV, Torrent Pharma among many more will be reporting their numbers.

Friday will also be the final day to subscribe to the Jio Platforms IPO, which has already received bids nearing ₹1.3 lakh crore by the time bidding closed on the second day.

Another impediment to any form of recovery has been the crude oil prices, which have continued to hover around the $110 - $112 a barrel mark, as till the time these prices remain at such levels, it will continue to act as a headwind for the market.

The Nifty managed to defend Wednesday's low of 22,649 on a closing basis, even though it broke well below that intraday. Thursday's low of 22,554 now becomes the downside support to watch in case of a further fall on Friday. On the upside, any form of recovery towards 22,700 - 22,800 is facing supply pressure.

The underlying trend of Nifty continues to be down. Further weakness from here could drag Nifty down to the next lower support of 22,300 - 22,200 levels by next week. Any bounce back could find strong resistance around 22,900 levels.

NAGARAJ SHETTI, HDFC SECURITIES

Shrikant Chouhan of Kotak Neo said that the 22,600 - 22,500 level will be a key support for traders, sustaining above which the index could attempt a move back to the 22,800 mark and then attempt a move towards 23,000. However, the selling pressure may accelerate if the Nifty breaks below 22,550, taking it back down to the 22,400 - 22,350 zone, he added.

The major reason why the Nifty managed to somehow keep its losses in check and not collapse under a free fall, was the Nifty Bank. The index recovered nearly 500 points from the day's low and managed to defend the 54,500 level yet again on a closing basis, even though it slipped below it intraday. The 1,000 point range of 54,500 - 55,500 remains intact for the index going into the final trading session for the week.

Vatsal Bhuva of LKP Securities continues to advice a cautious approach on the index, suggesting that a bullish view should be taken only when the index closes above the 56,000 mark on the upside. 55,200 is an immediate hurdle, while 54,800 - 54,500 can act as a support zone.

The 54,400 - 54,300 level will act as an important support for the Nifty Bank, according to Sudeep Shah of SBI Securities. A sustained breach of that level can invite further selling pressure, while on the upside, a 20-DEMA zone of 55,300 - 55,400 will be a barrier.