The Nifty is approaching a make-or-break point after spending 15 weeks inside a 1,531-point range, with a nascent reversal in foreign flows raising hopes that the unwinding of the crowded global artificial intelligence trade could finally provide the trigger for a breakout.
The benchmark closed at 24,366 after recovering more than 760 points over six sessions, while the Sensex jumped 2,035 points in five days this week. The rebound has brought the Nifty within striking distance of the 24,550-24,600 resistance zone, where the next leg of the market will likely be decided.
The latest rally comes after a prolonged period of indecision. The Nifty has oscillated between 23,070 and 24,601 over the past 15 weeks, according to SBI Securities. The range narrowed further to 23,605-24,530 over the past seven weeks, reflecting a lack of conviction among both bulls and bears.
What may now be changing is the global allocation backdrop.
“If ‘Sell India’ was the allocation choice for investors seeking AI exposure, then ‘Buy India’ should logically become the preferred choice when the AI hype reverses,” Bay Capital Investment Advisors said.
India’s limited participation in the global AI boom had prompted a sharp reallocation of foreign capital. FIIs have sold nearly Rs 2.5 lakh crore in the Indian cash market so far this year, with much of that money rotating into Taiwan, South Korea and China. Taiwan and South Korea recorded record foreign inflows, while India remained structurally under-indexed to the AI theme, according to Bay Capital.
That relative lack of AI exposure, previously a disadvantage, could now strengthen India’s case as the crowded global technology trade begins to unwind.
“Meanwhile, the unwinding of the crowded global AI trade during the week strengthened the case for foreign inflows into India’s diversified equity market, helping the rupee firm up,” said Vinod Nair, head of research at Geojit Investments.
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There are already early signs of a reversal in foreign flows. FIIs recorded net inflows of more than Rs 20,000 crore in July after four months of non-stop outflows.
Vinit Bolinjkar, head of research at Ventura, described the recent flows as a “decisive turnaround in foreign capital,” adding that strong domestic institutional support and blue-chip buying had established a solid floor for the market.
The recovery was also aided by a sharp decline in crude oil prices, which eased inflation concerns and improved risk appetite. The rupee strengthened, while robust quarterly earnings and gains in global markets added to the positive undertone.
Indian equities brushed aside concerns over renewed US-Iran hostilities as corporate earnings and sector-specific buying supported sentiment. Strong industrial production data and improving monsoon conditions provided additional domestic tailwinds.
The rebound was led by large-cap stocks, although the recovery remained broad-based. Metals and automobiles emerged as the strongest sectors, benefiting from an improving global outlook and lower energy costs. Domestic technology stocks came under pressure toward the end of the week following a rebound in global chipmakers, but still finished the week with strong gains.
The technical setup, however, has yet to confirm the start of a sustained trend.
While the Nifty is trading above its 20-, 50- and 100-day exponential moving averages and has moved past the 200-day EMA around 24,370, major moving averages on the weekly chart remain largely flat. Daily and weekly momentum indicators also continue to point towards a sideways market.
The index has formed monthly candles with shadows on both sides for four consecutive months, underscoring the persistent battle between buyers and sellers.
SBI Securities expects 24,550-24,600 to remain the crucial resistance zone. A decisive breakout above 24,600 could propel the Nifty towards 24,900 and potentially 25,200. On the downside, 24,150-24,100 is expected to provide strong support.
Ajit Mishra, senior vice-president of research at Religare Broking, said the Nifty had strengthened its bullish structure by surpassing the 200-day EMA.
“The index now appears well-positioned to inch towards the 24,600 level, which coincides with the previous swing high, and a decisive breakout above this zone could open the door for a move towards the 24,800-25,000 mark,” Mishra said.
He expects 24,270 to act as immediate support, followed by the 24,150-24,050 zone. As long as the index remains above that band, Mishra expects a buy-on-dips strategy to remain favourable, with auto and pharma among the relatively stronger sectors.
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Rupak De, senior technical analyst at LKP Securities, also sees a positive near-term trend but cautioned that the recovery lacks momentum.
“However, momentum appears to be lacking as traders remain cautious due to volatile crude oil prices and the uncertain situation in the Middle East,” De said. He placed immediate support at 24,200 and resistance at 24,500.
Whether returning foreign flows can finally free the Nifty from its 15-week range will depend on more than the AI rotation. Stability in crude oil prices, an easing of geopolitical uncertainty and a broadening of earnings growth beyond a handful of sectors will be crucial.
The US Federal Reserve’s decision to leave interest rates unchanged was in line with expectations, but its hawkish commentary indicated that restrictive policy settings could persist if inflation does not move sustainably towards the central bank’s target.
Investors will now track US labour-market data, while the Reserve Bank of India’s policy decision and domestic purchasing managers’ index releases will provide the next major cues. With the Nifty closing near the upper end of its consolidation range, the market has regained momentum but the decisive test remains a sustained move above 24,600.
