Nifty and Bank Nifty Approach Oversold Levels, Analysts Warn

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The Indian stock market experienced a sharp decline on May 12, with the National Stock Exchange (NSE) witnessing a loss of approximately Rs 11 lakh crore in market value. The BSE Sensex and Nifty 50 indices suffered their worst day in six weeks, logging a loss of 1.92% and 1.83% respectively.

The BSE Sensex closed at 74,559.24, while the Nifty 50 finished at 23,379.55, down 436.30 points from its previous close. This marked the fourth consecutive session of decline for the Nifty 50, with the index opening with a gap-down and closing below the April 13 low. The selling pressure intensified throughout the session, dragging the index below its key support level.

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Technical analysts are now questioning whether the markets are oversold or if more falls are expected. According to Om Mehra, Technical Research analyst at SAMCO Securities, the Nifty 50 has formed a double-top breakdown, with the index slipping below all key moving averages. The Relative Strength Index (RSI) has dropped to 40, approaching the oversold zone and moving sharply below its signal line.

The next important support area for the Nifty 50 is the 23,200-23,150 zone, while the 23,550-23,650 zone remains the immediate resistance band. Unless the index reclaims this zone on a closing basis, the near-term outlook is likely to remain weak, with recovery attempts expected to face selling pressure at higher levels.

The Bank Nifty, which is a subset of the Nifty 50, also extended its decline for the third consecutive session, closing at 53,555.20, down 1.63%. According to Mehra, the index has formed a three black crow pattern on the daily chart and is approaching the key support level at 52,778.20.

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The next important support area for the Bank Nifty is the 53,000-52,800 zone, while the 54,000-54,300 zone remains the immediate resistance band. Unless the Bank Nifty reclaims this zone on a closing basis, the near-term outlook is likely to remain under pressure.

Shrikant Chouhan, Head Equity Research at Kotak Securities, is of the view that the intraday market texture is weak, but oversold conditions suggest a strong possibility of a quick pullback rally from the current levels. For day traders, 23,500/74,800 would act as a key resistance zone. Below this, the correction continuation pattern could extend till 23,250-23,150/74,000-73,700. On the flip side, above 23,500/74,800, the pullback move could extend up to 23,600-25,650/75,000-75,300.