Trade Setup: Nifty Takes A Breather After 2,500-Point Surge; Banking Stocks Retreat, F&O Signals Mixed

The Nifty 50 opened the new trading week on a subdued note, signalling a pause after rallying nearly 2,500 points in the past two months. Despite recovering from intraday lows, the index faced resistance at Friday's high of 21,492, snapping a three-day winning streak. The banking sector, a key driver of the Nifty's recent gains, witnessed profit booking, primarily from large private banks, while a lack of support from technology stocks added to the downward pressure.

Large private banks led a retreat in banking stocks, contributing to the Nifty's subdued performance. The sector, which had been a primary contributor to the recent market surge, experienced profit booking. Technology stocks, after a rapid rally over the previous week, also failed to provide support, further impacting the index.

With the year drawing to a close, institutional participation in the market is starting to dwindle. Foreign investors recorded a minor sell figure on Monday, while domestic institutions continued to be net buyers in the cash market. Prashanth Tapse, Senior VP (Research) at Mehta Equities Ltd, noted, "While the undertone remains bullish in view of strong economic fundamentals, select bouts of profit-taking cannot be ruled out."

As highlighted, the Nifty Bank underperformed the Nifty on Monday, ending below the 48,000 mark and facing resistance above that level. Tuesday marks the weekly options expiry for Nifty Financial Services contracts, adding to the market dynamics.

Ajit Mishra, SVP - Technical Research of Religare Broking says, "We maintain our bullish view and suggest focusing on buying opportunities amid consolidation. At the same time, traders shouldn't get carried away with the prevailing momentum and stick with the fundamentally sound counters. Apart from the preferred set viz. banking and IT, we feel stocks from FMCG, pharma and metal can do well so align trades accordingly."

In the Futures and Options (F&O) segment, Nifty 50's December futures saw a reduction of 8.6% and 11.1 lakh shares in Open Interest, now trading at a premium of 58.6 points. Nifty Bank's December futures shed 6.1% and 1.17 lakh shares in Open Interest. Analysts suggest focusing on buying opportunities amid consolidation, maintaining a bullish view, and advising caution against getting carried away with prevailing momentum.

For Tuesday, Shiju Koothupalakkal - Technical Research Analyst, Prabhudas Lilladher expects the Nifty spot index to find support to 21,300/21,250 and resistence is seen around 21,550/21,600. While Bank Nifty is expected to find support around 47,500/47,450 and resistance around 48,200/48,250.
Koothupalakkal recommended buying in three stocks on December 18th. These are:
BUY IOL CHEM at 460.90 stoploss 454 Target Rs 480 per share
BUY EXIDE INDS at 305.35 stoploss 300 Target Rs 320 per share
BUY DCAL at 161.55 stoploss 170 Target Rs 158 per share

Investors are advised to keep an eye on key stock moves, including Vedanta's declaration of a second interim dividend, Apollo Tyres' potential equity sale, Sun Pharma's acquisition plans, and developments in the QSR market with Devyani International entering Thailand.

As investors keep a keen eye on global cues, Asian markets opened mixed, anticipating the Bank of Japan's rate decision and Australia's central bank meeting minutes. The Nikkei 225 in Japan is marginally higher, while the Topix is down 0.25%. South Korea's Kospi is trading marginally lower, and the Kosdaq has reversed gains to trade with gains of 0.7%. Hang Seng's futures point to a negative start.

The GIFT Nifty trades flat against Nifty Futures Monday close, signalling a muted start for the Indian market. In the US, benchmark indices advanced overnight, with the S&P 500 and Nasdaq gaining 0.4% and 0.6%, respectively, inching closer to their all-time closing highs set in January 2022. Investors remain watchful for further developments in both domestic and global markets as the week unfolds.

The Nifty 50's breather after a significant surge reflects the market's cautious stance amid profit-taking, sector-specific shifts, and evolving global cues. As the year concludes, market participants are urged to stay vigilant, considering mixed signals in the F&O segment and potential impacts from global developments on the horizon. Tuesday's options expiry and key stock moves are expected to influence market sentiment, providing traders and investors with crucial insights in navigating the week ahead.