Nifty Outlook for September 16: Recent swing lows back in focus with headwinds beyond India's control

If anyone told you, that after opening close to 23,600 mark after the long weekend, the Nifty will barely manage to hold on to the 23,100 mark by the close of the same trading session, is either joking, or is lying.

Tuesday's price action is proof enough that there is absolutely no conviction in the market at higher levels. Of course, there are headwinds for the markets to tackle, with crude persistent and stubborn above $100 a barrel, US 10-year bond yields crossing the 5% mark, and the US Federal Reserve all but set to raise interest rates on Wednesday night, the ferocity of the sell-off left market participants guessing.

A 480-point cool-off from the highs of the session is not something that bulls would want to revisit. That fall could have been much worse, had IT not managed to save some of the blushes, but that too trimmed its gains by half until the close of the session.

What is going wrong? All the three headwinds mentioned above is everything that could go wrong in this market. Domestically, we are fine. Yes, inflation is higher, but that is also a doing of these very global factors. But otherwise, growth has been decent, the FCNR(B) flows have been good and banks would most likely show healthy deposit growth when they give out their quarterly updates in two weeks from now.

But is there light at the end of the tunnel? Probably. If the global factors manage to calm down in the near future. The tide appears to be turning for HDFC Bank, one of the largest Nifty constituent and a major underperformer this year as we count down towards its next MD & CEO, which as per sources to CNBC-TV18, could be announced in a week or two.

The tide may also be turning for India's IT sector as the global AI giants call for slowing of the technology's development. While this may not necessarily mean an immediate structural shift, if this sentiment shift itself manages to ensure that these companies manage to trim some of their year-to-date losses, that in itself could contribute to the Nifty's recovery as well.

But for now, the trend is weak. The sell-off has put 23,500 at a distance for the bulls. Lower levels now come into play, with the recent swing low of 23,070, which is the low of June 8, and then the 23,000 levels open up on the downside. On the upside, the index has to of course cross 23,250 first, before looking at higher levels.

While we do react to global developments on Wednesday, the focus will move back to payment companies with the announcement of the MDR levy. Paytm, Pinelabs, Mobikwik, among others will be in the spotlight after last week's sharp run-up. Wednesday will also see the anchor book for the NSE IPO open.

Sudeep Shah of SBI Securities believes that the near-term trend for the Nifty is likely to remain weak as long as the index remains below the 23,280 mark. On the downside, he expects the selling pressure to intensify towards the 22,950 mark, followed by 22,800. Only a sustained move above 23,280 could reverse the prevailing bearish sentiment.

"The underlying trend of Nifty is sharply down. A decisive slide below 23,000 levels could drag Nifty down to the next lower area of 22,600 - 22,500 in the near term. Any pullback rally could find resistance around 23,300 levels," said Nagaraj Shetti of HDFC Securities.

The Nifty Bank also broke below the 56,000 level, having cooled off 1,200 points from the day's high, which was near the 57,000 mark on the upside. The index also closed at the day's low after today's CAS, similar to the Nifty. The Nifty Bank is also now on the verge of entering a "technical correction", meaning a 10% fall from record high levels.

Vatsal Bhuva of LKP Securities saw the formation of a long bearish candlestick on the Nifty Bank's daily chart along with a sustained move below its 100-Day Moving Average, thereby implying a weak chart structure and prevailing bearish sentiment. He sees immediate support at 55,500, while positional support is only at 55,000 - 55,100 levels. On the upside, 56,500 could be a barrier.