Nifty 50 Index Extends Decline, Investors Tame their Risk Appetite

Summary:
• The Nifty 50 Index is under pressure as hope replaces confidence in the Indian markets with high interest rates likely to last for longer.

The Nifty 50 Index dropped on Tuesday, dampened by increased prospects of higher-for-longer interest rates in India. The Index was at 25,038 points at the time of writing, down by 0.3 percent on the daily chart. The Index is struggling to find its rhythm after a rough period in the last month which saw it decline by 1.5 percent.

The escalation of the Middle East conflict drove the Nifty 50 Index down starting late September, as investors limited their risk appetite. In addition, China’s announcement of an economic stimulus drew foreign investors to the erstwhile troubled Chinese stock markets, driven by the perception that the Indian markets had heated up after a long rally.

Data released on Monday showed that India’s Consumer Price Index (CPI) rose more than expected in September, exerting downward pressure on the Nifty 50. Inflation soared for the second successive month, with the reading coming in at 5.49 percent against analysts’ forecast of 5.00 percent. That raises the prospects of the Reserve Bank of India keeping interest rates elevated at 6.50 for the rest of the year.

The high-interest regime dampened the mood in the markets, with the largest stock in the Nifty 50 Index (INDEXNSE: NIFTY_50), Reliance Industries, going down by 2 percent as of this writing. HDFC Bank was down by 0.3 percent. However, China’s economic stimulus plan has turned out to be less aggressive than previously thought, and that could help keep foreign institutional capital in Indian stocks.

Nifty 50 prediction

The momentum on the Nifty 50 Index signals bearish control below the pivot mark at 25,109. The downside will likely find the first support at 24,960, but a stronger downward momentum in the markets could extend the decline to the second support at 24,823.

Alternatively, moving above 25,109 will signal a takeover by the buyers. The upward momentum will likely encounter the first resistance at 25,219. If the momentum strengthens, it could break above the first barrier and invalidate the downward momentum. Meanwhile, the gains could pile up to test the second resistance at 25,332.