Trade Setup for January 20: Nifty continues to protect 25,500 but a break may accelerate the fall

After a brief pause, the Nifty resumed its corrective decline, falling 108 points to close at 25,585 on Monday, marking its lowest level in the ongoing correction.

The benchmark has now slipped nearly 3% from its all-time high of 26,373.

The index opened with a downside gap of 40 points and came under sharp selling pressure soon after the opening bell. While there was a modest intraday recovery, the Nifty moved in a narrow range for most of the session and eventually ended off the day's lows.

The sell-off was largely driven by weak quarterly earnings from index heavyweights. The Nifty failed to hold above the crucial 25,600 level, with Reliance Industries and ICICI Bank emerging as the biggest drags.

More than 30 Nifty constituents ended in the red, with Wipro, Reliance Industries, Eternal and ICICI Bank among the top losers. Barring FMCG and auto, all sectoral indices closed lower.

The broader markets mirrored the weakness in benchmarks, with the Nifty Midcap 100 declining 0.37% and the Nifty Smallcap 100 slipping 1%.

Stock-specific reactions to earnings remained sharp during Monday's session. Wipro shares plunged over 9%, while Reliance Industries fell 3.5%, ICICI Bank declined 3.4% and HDFC Bank slipped 1%.

On the macro front, the International Monetary Fund revised India's growth outlook upward, projecting GDP growth of 7.3% in FY26, an upward revision of 70 bps from its October estimate, and 6.4% growth in FY27 compared with 6.2% earlier.

Looking ahead, markets are expected to trade sideways while tracking global cues and ongoing earnings, though any escalation on the geopolitical front could remain a key overhang, said Siddhartha Khemka of Motilal Oswal.

Technically, the Nifty remained under bearish control, sustaining below its 20-day EMA throughout the session. Intraday volatility persisted, with every rise met by selling pressure.

Nagaraj Shetti of HDFC Securities said a sustainable rebound from the crucial support near 25,500 could trigger a short-term recovery, but a decisive break below this level may lead to further weakness toward 25,200, near the 200-day EMA.

Rupak De of LKP Securities said the Nifty could continue to drift lower in the near term, with downside seen around 25,200, while resistance is placed near 25,700.

Meanwhile, Nandish Shah of HDFC Securities said that a decisive breach below 25,473 would break the current consolidation range and could accelerate the fall toward the next major support at 25,318, with immediate resistance now seen at 25,865.