Nifty 50 index sell-off eases but beware of a dead cat bounce

The Nifty 50 index has not been left behind in the ongoing global stock sell-off. The closely-watched index of blue-chip Indian companies was trading at ₹17,085 on Friday, ~9.5% below the highest level this year. The index is hovering near the lowest level since October 17.

Indian stocks sell-off continues

The Nifty 50 index, like other global indices, has continued falling as regulators rush to contain the banking sector. On Wednesday, Swiss regulators provided liquidity worth over $50 billion to Credit Suisse. 

And on Thursday, a group of banks like Goldman Sachs and JP Morgan announced that they were depositing $30 billion to First Republic Bank (FRC). The measure was coordinated by Janet Yellen, the Treasury Secretary.

Before that, regulators, including the Federal Reserve, announced that they were backstopping all depositors in Silicon Valley Bank and Signature Bank. 

The downward trend in global stocks has also hit Nifty 50 banks as well. However, the sell-off in these companies has been a bit contained compared to their American and European peers. ICICI share price has dropped by over 5.8% from the highest point this month. 

Similarly, banks like Kotak Mahindra, SBI, and Axis Bank have dropped by single digits in the past few days. In contrast, British banks like Lloyds, Barclays, and HSBC share prices have dropped by over 10% in the past few days. 

This performance is likely because Indian banks are more divorced from their global peers. Most importantly, these banks had little exposure to the key banks at risk, including SVB and Signature, 

The top-performing Nifty 50 index constituents in the past five days were Bharat Petroleum, Tech Mahindra, Titan Company, and Larsen & Toubro. On the other hand, the worst performers in this period are firms like IndusInd Bank, Mahindra & Mahindra, Tata Consultancy, and Bharti Airtel.

Nifty 50 index forecast

Nifty chart by TradingView

The Nifty 50 index has been in a bearish trend in the past few months. In this period, it has moved to the 50% Fibonacci Retracement level on the 4H chart. The index has moved below the 25-day and 50-day exponential moving averages.

Most importantly, the index has formed a descending channel shown in blue. This price is slightly above the lower side of the channel. Therefore, there is a likelihood that the Nifty will rebound to the 38.2% retracement level of ₹17,480. However, a drop below the lower side of the channel at ₹16,858 will invalidate the bullish view.