Technical Analysis Suggests Markets at Risk of Further Decline Ahead of Next Week

Market Volatility Persists as Sensex and Nifty Post Sharp Decline

The benchmark equity indices Sensex and Nifty experienced a sharp downturn on Friday, following intense volatility in the final hour of trade. Heavy institutional selling led to a significant erosion of intraday gains, resulting in a sharp decline in the indices.

The Nifty settled at 23,547.75, down 359.40 points or 1.5 percent, while the Sensex declined 1,092.05 points or 1.44 percent to close at 74,775.74. Both indices posted monthly losses, with the Nifty down 1.9 percent and the Sensex falling 2.8 percent for the month.

The sharp decline has been attributed to uncertainty over a possible US-Iran peace deal, prompting investors to book profits following April's strong rally. Analysts have cautioned that volatility could persist in the coming sessions, weakening the market's near-term structure.

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Ajit Mishra, SVP, Research, Religare Broking, noted that the sharp fall in the Nifty has weakened the near-term structure, with the index moving closer to its recent swing low near 23,250. He attributed the decline to a sudden spike in volatility linked to the MSCI May 2026 index rebalancing, which triggered heavy passive institutional flows during the closing session.

Mishra also pointed out that weakness in heavyweight stocks and sustained pressure in banking majors such as HDFC Bank and ICICI Bank further intensified the decline. He advised investors to maintain a cautious approach and keep positions light until there is greater clarity on global and domestic developments.

Siddhartha Khemka, Head of Research, Wealth Management, at Motilal Oswal Financial Services, expects benchmark indices to remain range-bound next week. However, he noted that select midcap and smallcap stocks could continue to outperform on the back of healthy earnings momentum and strong domestic liquidity.

Khemka pointed out that the RBI has indicated that strong domestic demand and resilient financial conditions continue to support the economy. However, concerns over rising food inflation, weaker monsoon forecasts, and rupee volatility may keep the monetary policy stance cautious. Markets are closely tracking the upcoming RBI Monetary Policy Committee meeting scheduled from June 3 to 5, with the policy decision due on June 5.

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Rupak De, Senior Technical Analyst at LKP Securities, expects the Nifty to potentially drift towards the 23,250 mark and lower levels on the downside. Immediate resistance for the index is placed near 23,700, and selling pressure is likely to persist as long as the Nifty remains below that level.

Sectorally, metals, energy, and auto stocks emerged among the major losers following the sharp sell-off, while IT stocks managed to end with modest gains. Broader markets also witnessed profit booking, with both midcap and smallcap indices declining nearly 1 percent each.

Note: The table shows the comparison of Nifty and Sensex indices between April and May.