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The Indian stock market, represented by the Nifty index, is facing renewed uncertainty as Trump's tariff deadline looms. The recovery rally that had been in play since early August appears to be losing steam, with profit-booking emerging as a significant factor. While the rise in the Nifty over this period was substantial, the impending event risks associated with the tariff deadline have created a cautious environment among investors. The fact that the Volatility Index (VIX), a measure of market volatility, remains relatively soft suggests that traders have not fully priced in the potential for large market swings. This is despite the Nifty's previous downward trajectory before the recent recovery. However, the presence of a mid-week holiday introduces the possibility of unexpected, sharp movements in the market, amplifying the uncertainty. While the broader market has experienced a decline, it is not yet cause for significant alarm. A considerable portion of Nifty 50 constituents have slipped below their respective 10-day Simple Moving Average (SMA), a key short-term benchmark, indicating weakening momentum in several sectors. The Bank Nifty index has the fewest constituents trading above this moving average, while the Nifty IT index shows strength with a high percentage of constituents above the SMA. The proportion of Index Futures held by Foreign Institutional Investors (FIIs) has improved slightly, suggesting some renewed interest. However, an increase in both long and short positions indicates that the expected short covering by FIIs is not materializing as quickly as anticipated. This highlights a divergence in sentiment and further complicates the market outlook. The article then delves into specific sectors, providing insights into the Nifty Pharma and Nifty Metal indices, offering a more granular understanding of the market dynamics.
The Nifty Pharma Index is exhibiting encouraging signs of a sustained reversal, displaying a consistent pattern of higher highs and higher lows since mid-August. The index has recorded two consecutive weekly gains, and a recent Moving Average Convergence Divergence (MACD) crossover further reinforces the bullish narrative. From a derivatives perspective, sentiment is predominantly favorable, with a significant percentage of index constituents having a Put-Call Ratio (PCR) below 0.5, indicating potential short covering. Moreover, a large proportion of the stocks within the index have witnessed either long build-up or short covering over the past week, signaling strengthening bullish momentum. Several heavyweight stocks within the Pharma index, including Sun Pharma, Cipla, Divi's Laboratories, Dr. Reddy's, Torrent Pharma, Mankind, Lupin, and Aurobindo Pharma, which collectively represent a substantial portion of the index's weighting, are showing clear signs of trend reversal. Their average Relative Strength Index (RSI) hovering near 50 suggests that there is still significant room for further upside. If this bullish momentum continues, the Nifty Pharma Index is poised to test the 22,540–22,580 range in the near term. This sector appears to be relatively resilient to the broader market concerns and is driven by its own fundamental and technical factors, making it a potential area of opportunity for investors.
Conversely, the Nifty Metal Index is facing headwinds. The recent recovery in the index lost momentum near the descending trendline resistance at 9,530. Friday's trading session saw the formation of a prominent bearish Marubozu candle on the daily chart, indicating a resurgence of selling pressure. Technical indicators, particularly the MACD histogram on the daily timeframe, are showing signs of fatigue at elevated levels, suggesting a potential pullback may be underway. Derivative sentiment has turned decisively bearish, with a large majority of the index constituents experiencing long unwinding, effectively erasing earlier optimism. Furthermore, a significant percentage of stocks saw short positions building up in their near-the-money call options, further reinforcing the negative outlook. Key players in the Metal index, such as Adani Enterprises, JSW Steel, Hindustan Zinc, Vedanta, and Tata Steel, also printed bearish Marubozu candles, pointing to continued downside risk for both individual names and the broader index. If this weakness persists, the Nifty Metal Index could potentially slide toward the 9,290 support level in the near term. The divergence between the Pharma and Metal sectors highlights the importance of selective investment strategies in the current market environment. While the Nifty faces macro uncertainties, some sectors demonstrate resilience and positive momentum, while others are vulnerable to downward pressure.