A surprise 40 bps rate cut shook the Indian equity market as the benchmark Nifty50 fell more than 2 percent on May 4 with most sectors in the red.
Nifty opened at 17,096.60 against the previous close of 17,069.10 and touched intraday high and low of 17,132.85 and 16,623.95 respectively. The index eventually closed at 16,677.60, down 392 points or 2.29 percent.
The RBI rate hike triggered a massive wave of selloff which drowned most sectors. Nifty Media fell more than 4 percent while consumer durables, metal, realty and healthcare indices fell more than 3 percent each.
Rate sensitive Nifty Bank index fell 2.49 percent while the auto index fell 2.54 percent.
“Ahead of the Fed meeting in the US, the Reserve Bank has created a stir in the Indian markets by suddenly increasing interest rates. The prime rate has been increased by 40 basis points and the CRR has also been increased by 50 basis points. After this, we saw a sudden drop in the benchmark indices," Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities, pointed out.
Chouhan pointed out that the market closed below the crucial level of 16,800 and further weakness may push the market further down to 16,400/16,200 in the near term.
"On the upside, 16,800/16,900 would act as the biggest hurdle. Reducing weak long positions is advisable near the 16,800 levels and contra buying is recommended only around 16,200 and below,” said Chouhan.
Nifty50 formed a long black day kind of formation as it tumbled down by a little higher than 2 percent. In this process, it breached critical supports placed around 16,850, Mazhar Mohammad, Founder & Chief Market Strategist, Chartviewindia.in, observed.
"If the downward spiral continues then the weakness shall eventually extend towards its logical target of 16,159. However, in between, there is a bullish gap placed between 16,447 –16,418 levels. Meanwhile, any rally towards its 200-day exponential moving average (16,865) may attract selling pressure and strength in the index will not resume unless it closes above 17,135. For the time being it looks prudent to remain neutral on the long side," said Mohammad.
As per Palak Kothari, Research Associate at Choice Broking, Nifty formed a bearish engulfing candlestick pattern which indicates downside movement for the upcoming session. On a daily chart, the index has given a breakdown of the neckline of the head & shoulder pattern which suggests a southward direction for the index.
"The index has been trading below the 21 and 50-day simple moving averages (SMAs) indicating weakness. Momentum indicators 'stochastic' are trading with negative crossover on the daily charts which indicates downside movement can be seen. Nifty has breached the support zone of 16,800 and given closing below it. 16,560 is the immediate support for the index, while on the upside 17,000 may act as an immediate hurdle for the index," said Kothari.
Disclaimer: The views and recommendations made above are those of individual analysts and not of MintGenie.