The recent downturn in the stock market certainly raised eyebrows, especially with investors hoping for some stability ahead of Trump’s tariff announcement. Last Friday’s sharp decline was unexpected, particularly since earnings season typically offers a cushion against major losses. As we navigate this turbulent market, the question remains: can we avoid a collapse reminiscent of the early COVID-19 crisis?

Market Overview: A General Decline

The broader market has shown signs of weakness, indicating that the recent recovery phase has faltered. This downturn is highlighted by two key indicators:

• Nifty’s Weekly Chart: The formation of an evening star candlestick pattern suggests a potential reversal.
• Nifty 500 Performance: A staggering 75% of stocks closed below their 10-day moving averages, signaling a bearish trend.

Nifty IT Index Struggles

In our previous analysis, we discussed the potential for a turnaround in the Nifty IT Index. Unfortunately, this optimism was met with resistance, leading to significant sell-offs that originated from the U.S. markets. The Nifty IT Index has now broken below a widening wedge pattern and has formed a weekly Marubozu candle, marking its second-largest weekly decline since March 2020.

• For the first time since March 2020, the index has dipped below the 200-week moving average (WMA).
• Historically, the Nifty IT index has closed beneath the 200 WMA seven times in the past 15 years, with an average recovery time of five weeks. Interestingly, in six of those instances, the index rebounded by an average of 12% within three months.

Next week promises to be pivotal as Tata Consultancy Services begins the Q4 earnings season, yet April has not historically favored the IT sector post-pandemic.

FMCG Sector: Resilience Amidst Challenges

The Nifty FMCG Index had been on an upward trajectory until September 2024, but it recently broke through key support levels, indicating a structural shift. Since November, the index has been trapped in a downward trend, with a recent bounce from the 50,750 channel support showing signs of weakness as it approaches the 54,100 resistance.

• If the index continues to decline, we could see levels around 50,800 and 48,000.
• A decisive move above 55,000 on a closing basis may shift momentum in favor of recovery, positioning this index as one of the first to rebound.

Nifty Market Outlook

While we anticipated potential declines throughout last week, we believed that levels between 23,050-22,960 and 22,750-22,522 could provide some defense against drastic drops. Notably, the VIX remained relatively stable, only increasing by 1.1% to close at 13.75, despite a 1.49% fall in the Nifty.

As we brace for potential fallout from the overnight U.S. market collapse, a pressing concern is whether we are heading towards a COVID-like event characterized by rapid losses. In such a case, we might eye levels around 20,200-19,800 as initial downside targets.

A Different Scenario from Previous Crashes

Unlike the months leading up to the COVID-19 breakdown, which were marked by prolonged sideways trading that signaled exhaustion, we are currently 15% off the recent peak and have experienced significant volatility. This suggests that any future corrections may manifest more as time adjustments rather than drastic price drops.

Additionally, seasonal trends are in our favor, as April generally supports upward movements in the Nifty and various sectors. This creates an opportunity for a recovery attempt from the 22,500-22,350 range, which aligns with the lower half of the evening star candlestick on the Nifty weekly chart. If this support fails, only a drop below 21,800 would lead us to consider 19,800 as a viable target. However, the likelihood of such an event appears low.

This analysis has provided a fresh perspective on current market dynamics. As always, investors should consider their specific financial goals and consult with advisors before making investment decisions.