Temporary market relief likely as desperate bulls defend crucial support level | Stock Market News

The corrective phase of India’s stock markets is expected to continue but a short-term bounce appears possible with bulls managing to defend the strong support of 22,800 points for a third time on Monday, according to market analysts.

The benchmark Nifty 50 index recovered twice in the recent past from around that level despite relentless selling by foreign institutional investors (FII) on the back of global tariff tensions and rising US bond yields.

On Monday, bears pushed bulls by breaching the 22,800 level initially, dragging down the Nifty 50 to 22,725.45 points. The bulls fought hard to retrieve that level, succeeding finally after three intraday attempts. The Nifty 50 ended Monday at 22,959.5, up by a tenth of a percent, amid heightened volatility and FII selling.

The US benchmark yield has risen from 3.7% in mid-September to over 4.5% on inflationary fears amid US President Donald Trump’s increased tariffs on all imports into that country. This has sparked over $21 billion outflows from India since October, causing the rupee to fall 3.7% since the end of September to 86.88 to the US dollar as on Monday.

Also read | No, FPI selling is not an exodus. But then why is it hurting so bad?

Fear gauge India Vix jumped as much as 9% intraday to 16.31, reflecting the bitter battle between bulls and bears. Volatility eased in the last hour of trade, but still closed up 4.71% at 15.72.

“There is a chance of a bounce but 22,800 can become a really strong bottom if the 40-day exponential moving average of 23,443 is decisively breached,” said Jay Vora, research analyst at analytics firm IndiaCharts.

Sahaj Agrawal, senior vice president, derivatives research, at Kotak Securities, expects limited downside below the 22,800 level, which he said had “become a technical level from a psychological one”.

A temporary bounce

One of the signs of a temporary bounce was the increase in the put-call ratio (PCR) of Nifty options on Monday. The 20 February weekly Nifty options expiry witnessed PCR rising to 0.81 on Monday from 0.64 on Friday.

This means that ‘puts’ sold relative to ‘calls’ increased to 81 per 100 Nifty ‘calls’ sold from just 64 per 100 ‘calls’ sold on Friday. 

A ‘put’ is a financial contract that gives an owner the right to sell an underlying stock at a set price within a specified time, while a ‘call’ gives the owner the right to similarly buy an underlying stock. The seller of ‘puts’ and ‘calls’ is obliged to take and give delivery.

When uncertainty increases, the number of ‘puts’ relative to ‘calls’ sold decreases as option sellers fear losing heavily if the markets fall.

Similarly, when investor sentiment is upbeat, the ratio jumps well above 1 as traders sell more ‘puts’ relative to ‘calls’ as they believe rising markets will allow them to pocket premiums paid by put buyers.

This ratio has hit as high as 1.3 -1.4, indicating hugely overbought markets. A level below 0.7 indicates heavily oversold markets.

Also read | Bullish or bearish? Mint survey gauges market mood amid volatility

“Normally, we can get a bounce from heavily oversold conditions, but the extent of one is anybody’s guess given the slowdown in earnings growth and escalating global tariff tantrums,” said Rajesh Palviya, senior vice president, derivatives and technical research, at Axis Securities.

Standalone earnings of 3,067 companies in India rose by almost 14% year-on-year to ₹3.35 trillion in the quarter ended December. In the year-ago December quarter, corporate earnings had jumped by a more impressive 32.16% to ₹2.94 trillion.

India’s underperformance

China has gained at the expense of India, where valuations remain elevated. Nifty has traded at an average of 22.32 times trailing earnings since 2014, which is higher than 16.77 times the average price to earnings multiple in the 10 years preceding 2014, per Bloomberg.

India’s underperformance is reflected in the MSCI China index outperforming MSCI India by way of gross returns over one-month, three-month, and one-year periods.

MSCI China generated a gross return of 35.16% over a year through 31 January while MSCI India gave a 5.88% return over the same period. Recently, the disruption created by Chinese artificial intelligence firm DeepSeek diverted flows to China from other emerging markets.

Even the MSCI Emerging Market Index bettered India with a gross return of 15.35%, marking India to be among the worst performers with a depreciating currency.

Also read | Trump’s reciprocal tariffs: Time for India to rethink its trade policy

In terms of valuations also China is more attractive than India. MCSI China traded at a price-to-earnings multiple of 13.11 times in dollar terms at the end of January against MSCI India’s P/E of 25.82 times, per global index provider MSCI.

Foreign investors use MSCI indices to allocate money to markets across the world.

Sectors deep in the red

The recent sell-off in India has seen the Nifty correcting 13% from its record high of 26,277.35 points on 27 September to Monday’s closing at 22,959.5.

The Nifty Smallcap index has fallen into bear territory, declining 22.6% from its record high of 18,688.3 on 24 September to 14,468.25 on Monday.

The worst performing sectors as of Monday were the Nifty Realty, which was down 28%, and the Nifty Oil & Gas and Nifty PSU Bank, which were down 27% each from their 52-week high.

Other underperformers were the Nifty Auto, Nifty FMCG, and Nifty Consumer Durables, down around 20% each from their respective highs, due to a slowdown in economic growth from 8.2% in FY24 to an estimated 6.4% in the current fiscal year owing to a fall in capital expenditure by the government and lower consumption by households.