Nifty 50, the benchmark of the Indian stock market, has been in a range of late, unable to sustain above the 24,000 mark even as Brent Crude, the international crude benchmark, have declined below $100 per barrel, while the US and Iran continue talks through intermediaries.
The index breached the 24,000 mark in two consecutive sessions on Monday and Tuesday, but failed to hold above the key level as investors quickly turned cautious, dragging it back below the threshold.
Earlier in May, the index rose to the level of 24,482, but a sustained rally remained elusive.
On Tuesday, 26 May, the rose to 24,089 during the session but ended at 23,914. In the morning session on Wednesday, 27 May, the index declined to 23,868.
Why is the Nifty not able to hold 24,000?
The market is struggling due to the lack of clarity over the direction and timeline of a potential US-Iran peace deal.
While a ceasefire remains largely effective and there have been no large-scale fighting recently, there are reports of on southern Iran and Israel’s strikes in southern Lebanon, increasing the uncertainty quotient about the much-awaited peace deal.
According to Al Jazeera, Israel’s forces intensified their strikes in southern Lebanon on Tuesday, killing 31 people and injuring 40 others. This followed a US attack on targets in southern Iran on Monday.
“The market is still uncertain about the geopolitical situation. Crude oil remains a major concern for investors. Even though there are narratives around a possible trade deal and easing tensions, the actual developments on the ground are not fully supporting those expectations. Fresh attacks and rising tensions continue to keep market participants cautious,” Ajit Mishra, SVP of Research at Religare Broking, observed.
“Markets want clarity on whether shipping and supply-chain disruptions will ease meaningfully. Only when there is visible normalisation in these areas will markets get a strong signal that the worst is behind us,” said Mishra.
Even if a US-Iran peace deal is announced, the actual impact on global trade routes and the movement of vessels is still uncertain.
Therefore, market worries over the second and third-order impact of elevated oil prices on the Indian economy, currency, and corporate profitability are compounding.
Higher oil prices, along with the anticipated poor monsoon this year, can raise inflation to significantly higher levels, leading to monetary tightening. The US Federal Reserve, the Reserve Bank of India, and several other major central banks of the world may raise interest rates and keep them up for a longer period.
If this happens, which appears to be the case at this juncture, it will mean market returns may be modest or even low this year. This explains why investors are uncomfortable taking aggressive positions on the index.
Most experts believe that the index may rise to 25,000 if a deal is announced, but it is unlikely to be a smooth, one-way rally for the index. Volatility is likely to remain elevated.
“Nifty touching 25,000 is quite possible over the next one to two months if conditions improve. I believe the 24,600 level is an important hurdle, and a breakout above that could pave the way for further upside,” said Mishra.
Rajesh Palviya, Head of Research, Axis Direct, said the recent dip appears more like a consolidation after the strong rebound seen earlier, and any sustained move back above 24,000 could trigger fresh short covering and renewed buying momentum toward 24,100 and 24,300 levels.
On the downside, immediate support is placed at 23,800, followed by 23,600, where buying interest is likely to emerge, said Palviya.
Shrikant Chouhan, the head of equity research at Kotak Securities, believes the 20-day SMA (simple moving average) at 23,875 and 23,850 would act as important support zones for day traders.
Chouhan said as long as the market trades above these levels, the uptrend will remain intact.
“On the upside, 24,100 could be an immediate resistance zone for bulls. A break below this level could send the market towards 24,200–24,250. On the other hand, a break below 23,850 could lead to a move towards 23,700–23,600,” said Chouhan.
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