After six straight weeks of weakness, the Indian stock market finally showed signs of relief as Nifty closed Independence Week with a healthy 1.1% gain, reclaiming the 24,600 level.
However, the bounce has left traders wondering, is this the start of a real turnaround or just a temporary breather?
With Nifty still struggling below key moving averages and Bank Nifty stuck in a tight range, the coming week could decide the next big move for the markets.
Market Trend Still Fragile
According to Sudeep Shah, Vice-President & Head of Technical and Derivatives Research at SBI Securities, the Nifty’s bounce last week was encouraging but not conclusive.
“During Independence Week, the benchmark Nifty finally ended its six-week losing streak with a 1.1% gain, reclaiming 24,600,” he said.
He said, “This recovery was much-needed, but the last two sessions showed narrow moves with small-bodied candles, which signal the market still lacks firm conviction.”
Shah points out that Nifty remains below both its 20-day and 50-day moving averages, both of which continue to slope downward.
“Until the index clears the 24,750-24,800 zone decisively, it will remain under pressure. A breakout above 24,800 can open the way to 25,100, but on the downside, a breach of 24,450 could drag it toward 24,250 or even 24,100,” he explained.
Bank Nifty at Crossroads
The banking index, too, is showing hesitation. “Bank Nifty has been oscillating around its 100-day EMA for six sessions,” Shah said.
“It posted just a 0.6% gain last week, its tightest trading range in nearly a year, which reflects indecision. Key resistance lies at 55,700-55,800, while support is at 54,800-54,900. A sustained move beyond these levels will dictate the next trend.”
FII Positioning Signals Bearish Mood
FII derivatives positioning also indicates caution. The long-short ratio in index futures currently stands at just 8.3%, meaning over 91% of positions are on the short side.
Foreign investors continued to press the sell button on Indian equities in August, extending their selling streak amid global and domestic headwinds.
In just the first half of the month, Foreign Portfolio Investors (FPIs) offloaded shares worth nearly Rs 21,000 crore. According to depositories’ data, this has taken the total equity outflows to Rs 1.16 lakh crore so far in 2025.
The pressure comes from multiple fronts: ongoing US-India trade tensions, weak first-quarter corporate earnings, and a weakening rupee. FPIs have been net sellers for two consecutive months, after withdrawing Rs 17,741 crore in July.
Before this reversal, they had pumped in Rs 38,673 crore between March and June.
On the sectoral side, sustained selling in IT has pulled the index lower, though banking and financials have held relatively firm due to attractive valuations and institutional support.
Interestingly, FPIs have continued to deploy capital into debt, investing Rs 4,469 crore in the general limit and Rs 232 crore through the voluntary retention route so far in August.
“This is one of the most bearish stances we’ve seen in recent times,” Shah noted.
“Interestingly, the last time such extreme levels were seen was in March 2023, the market bottomed out and rallied sharply. So, while sentiment is weak, it also leaves room for short-covering rallies.”
He added that any positive trigger, such as progress on the trade front or stability in the rupee, could spark such a rebound.
Options Data Suggests Range-Bound Action
The options market reinforces the view of consolidation. Put writing at 24,500-24,600 creates strong support, while call writing at 24,700-24,800 caps the upside.
“As long as Nifty trades between 24,450 and 24,750, we are likely to see choppy, range-bound action,” Shah said.
How Traders Should Navigate
In this volatile setup, Shah advises caution. “Traders should prioritise quality names, align trades with the broader trend, and wait for price confirmation. Avoid overtrading and manage risks tightly,” he said.
On a sectoral note, Shah believes select spaces will continue to outperform. “Auto, PSU banks, healthcare, pharma, and tourism look strong on charts, while IT, FMCG, oil & gas, media, and realty may remain under pressure,” he added.
Among individual stocks, Chalet Hotels, HDFC Life, Uno Minda, and Max Financial are technically well-positioned, according to him.