As Nifty scales 20k, derivatives outlook show index marching on to higher peaks

The NSE Nifty 50 has touched new heights led by investments from FII, DIIs, and Indian retail investors, topping the psychological 20,000-mark on September 11. The benchmark index has now extended its winning streak to seven consecutive sessions, following a bullish breakout observed last week. At the close, Nifty was up by 0.89 percent, or 176.4 points, at 19,996.4. Volumes on the NSE were notably higher compared to the recent average. The Midcap index outperformed Nifty 50, with the advance-decline ratio rising to 1.23:1. But, the index’s forward march may take a short pause here.

“Nifty made a bull candle on September 11 and showed an upside breakout. However, the markets seem overbought and as per fibonacci numbers, September 12 could be a turn down day after Nifty rose for seven straight up sessions,” said Deepak Jasani, Head of Retail Research, HDFC Securities. “On up moves, Nifty could face resistance at 20,090, while 19,867 could provide support in the near term,” he added.

Bars reflect changes in open interest (OI) during the day. The red bars show call option OI and the green put option OI

Options data suggests substantial put writing at the 19,800 and 19,900 levels, forming a strong support base. Angel One maintains a positive outlook. “Bulls are firmly in control, with Nifty gaining nearly 4 percent in September. The ‘Higher Top Higher Bottom’ pattern continues, and we anticipate reaching further milestones in the near term,” the brokerage said.

Angel One also notes that hourly indicators are currently in overbought territory, suggesting a focus on buying during intraday dips. They identify immediate support for Nifty 50 in the range of 19900-19850, and immediate resistance in the zone of 20,160-20,200.

Rahul Sharma, Director and Head of Technical & Derivative Research at JM Financial Services Ltd, expects more upside. “The last few days, where weeks’ worth of movement occurred in just a few days, are testament to the underlying strength of this bull market. New leadership has emerged from IT, Capital Goods, and PSEs. The BFSI sector, which had been under significant pressure, is now back in positive territory. We are on track to reach 20,432 this month and 21,000 by Diwali.”

Rupak De, Senior Technical Analyst at LKP Securities, predicts, “Looking ahead, market sentiment is expected to remain optimistic as long as Nifty stays above the 19,900 level. On the upside, we identify an immediate resistance zone between 20,100 and 20,200. A convincing breakthrough above 20,200 could pave the way for Nifty to advance toward the 20,500 mark.”

Among individual stocks, the rally to the 20,000 mark was led by long build-up in companies such as AdaniPorts, AdaniEnt, PowerGrid, AxisBank, ApolloHosp, Maruti, HCLTech, TataSteel, NTPC, TataMotors, JSWSteel, and Wipro.

Conversely, short build-up was observed in stocks including HDFCLife, Hindalco, UPL, HeroMotoCo, SBIN, TataConsumer, Divislab, and ICICI Bank, among others.

What’s Next?

Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities, says, “With the breach of the important 20,000 resistance level, the next target for Nifty is 21,500, which is 3,000 points above the main breakout level of 18,500. Despite the market reaching new all-time highs, valuations remain reasonable. Nifty’s trailing twelve months PE is at 22.39, slightly above its long-term median of 20.62. Therefore, Nifty has ample room for further expansion, especially as we enter an election year, offering significant upside potential.”

Sheth also notes that the sectors that propelled Nifty to 20,000 may not necessarily be the ones to push it to 21,500. For example, Nifty IT is still trading more than 17 percent below its all-time highs. If the markets were to rise significantly above current levels, heavyweight sectors like IT and Banking may play a crucial role in driving the index higher.

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