Technical View | Nifty breaking 16,400 level on RBI policy day raises possibility of further correction

Representative image.

Representative image.

The Nifty50 extended losses for the fourth consecutive session and has decisively broken crucial support level of 16,400 on June 8 despite positive trend in Asian counterparts, probably due to inflation concerns. The Reserve Bank of India raised inflation forecast for FY23 to 6.7 percent from 5.7 percent earlier while hiking repo rate by 50 bps to 4.9 percent.

The index has seen the formation of a bearish candle on the daily charts as the closing was lower than the opening levels, indicating nervousness among market participants. If the index sustains below 16,400 levels, further weakness can’t be ruled out, experts said.

The broader markets also witnessed correction as the Nifty Midcap 100 index fell half a percent and Smallcap 100 index declined a third of a percent on weak breadth. About three shares declined for every two advancing shares on the NSE.

The only slight positive was the decline in volatility below the 20 mark, but experts said it has to fall below the 18 mark to get bulls back in action. India VIX, which measures the expected volatility in the market, declined 2.87 percent to 19.84 levels.

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The Nifty50 opened higher at 16,475 and went up to 16,514, an intraday high, after the RBI policy but correction in afternoon due to inflation concerns and weakness in European counterparts pulled down the index below 16,400. The index closed at 16,356, down 60 points.

“The Nifty50 slowly drifted down, after the RBI policy announcement, to close below critical short term support of 16,400 levels hinting that the bears are slowly strengthening their grip over the index,” Mazhar Mohammad, Founder and Chief Market Strategist at Chartviewindia said.

Hence, he said unless Nifty50 registers a close above 16,500 levels in the near term, the trajectory of the market shall remain down and correction may get further accelerated on a close below its 20 days SMA (simple moving average) whose value is placed around 16,250 levels.

Therefore, for the time being, it is better to avoid long side index bets, the market expert advised.

On option front, maximum Call open interest was witnessed at 17,500 strike followed by 17,000 strike while maximum Put open interest was seen at 16,000 strike followed by 15,500 strike.

Call writing was seen at 16,400 strike then 16,700 strike while minor Put writing was seen at 16,300 strike. The option data clearly indicated that the Nifty could see trading in a range of 16,200 to 16,600 levels in coming sessions.

Bank Nifty opened positive at 35,166 and moved in the upward direction for the first half of the session to hit a day’s high of 35,450 but drifted lower in the latter part. It closed with losses of 50 points at 34,946 and formed a bearish candle on the daily scale with a longer upper shadow indicating selling pressure visible at higher zones.

The index has been making lower lows in the last four sessions. Now it has to hold a key support of 34,750 levels, to witness a bounce towards 35,250 and 35,500 zones while on the downside support is seen at 34,750 levels followed by 34,500 levels, Chandan Taparia, Vice President, Analyst-Derivatives at Motilal Oswal Financial Services said.

Among stocks which are available for trading in the futures and options segment, a positive setup was seen in Cholamandalam Investment, SBI, HDFC AMC, Bank of Baroda, TCS, M&M Financial, Bandhan Bank, Maruti Suzuki, TVS Motor, Max Financial Services and Hero MotoCorp, Taparia said, adding that weakness was seen in Gujarat Gas, Deepak Nitrite, Polycab India, ICICI Lombard General Insurance, Bharti Airtel, LIC Housing Finance, Bata India, SRF, Havells, UPL, MRF, Pidilite Industries and Dabur.

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