Trade Setup for October 1: Nifty remains on the edge ahead of RBI policy, Auto sales, Q2 updates

The action in the Indian equity markets is all set to begin once again. Wednesday is not just the final trading day before Thursday's holiday, but is also the first trading day of the new month, new series, and the second half of the current financial year. Unsurprisingly, the Nifty bulls remain on the edge.

Tuesday's monthly expiry session was a rangebound one, but followed a similar script. The Nifty opens higher, the gains are not sustained, every intraday recovery gets sold into, and the index makes yet another lower low. The losing streak for the Nifty has now extended to eight trading sessions.

For yet another trading session, the Nifty has closed near the day's lowest point. Having broken below Monday's low of 24,604, the index made a new intraday low of 24,591 on Tuesday. That continues to become the first key level on the downside to watch out for.

During the first half of Wednesday's trading session, all eyes are will be on Reserve Bank of India Governor Sanjay Malhotra, as to whether he takes a step forward and delivers yet another rate cut, or chooses to stay put and wait for things to unfold in response to the actions previously taken by the central bank.

More than the interest rate action, which is slowly and every-so-slightly veering towards a status quo among market participants, the commentary from the Governor on the road ahead for policy, and revisions to the growth and inflation outlook, if any, will be keenly watched by the street. The RBI policy will keep interest rate sensitives like banks, autos, NBFCs and Real Estate stocks in the spotlight.

Speaking of Auto stocks, companies will begin to report sales numbers for the month of September, and the second quarter from Wednesday as well. Auto stocks had run up to record levels in anticipation of a strong demand boost after the GST rate cut, which made cars cheaper and it remains to be seen if the eight days of Navratri, which co-incided with the final eight days of the quarter, will be able to offset what was expected to be another underwhelming quarter for most of these auto companies.

Tuesday marked the end of the quarter and companies will start to report their business updates for the quarter as well. Banks, FMCG stocks, PSUs such as Coal India, NMDC, MOIL, among others, will be reporting their updates for the quarter during the remaining days of the week. That will be another trigger for the markets, that have remained in wait-and-watch mode over the last two trading sessions.

The 24,650 - 24,700 range on the Nifty will be an important one to watch on the upside for the Nifty. It is the Nifty Bank that managed to salvage the day for the index and keep the losses in check. The Nifty Bank has also closed above its key 54,500 level and will be instrumental to ensure that the new series begins on a positive note for the Nifty on Wednesday.

"The technical outlook remains bleak, as the corrective trend continues for the eighth consecutive session. From a technical standpoint, the 89-day DEMA represents a significant obstacle for the benchmark index," said Rajesh Bhosale of Angel One. "On the levels front, the next potential support level is identified around the 24,500 zone, with a subsequent support level at the recent swing low of 24,400. Conversely, significant resistance has been established in the range of 24,750-24,800," he added.

Nagaraj Shetti of HDFC Securities believes that the underlying Nifty trend continues to remain choppy and further declines could drag the index down to 24,500 or even the recent 24,400 swing low. Only a sustained move above 24,750 - 24,800 could lead to further upside, he added.