Nifty Rally Caution: Sudeep Shah's Technical Analysis

Published in Stocks and Investing on Sunday, August 17th 2025 at 10:06 GMT by moneycontrol.com
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Current options data and the Put-Call Ratio (PCR) suggest that the market is likely to remain in a short-term consolidation phase, said Sudeep Shah of SBI Securities.

Chartist Talk: Sudeep Shah Remains Cautious Amid Nifty's Rally, Bullish on Four Stocks for the Coming Week

In the ever-volatile world of Indian equities, the Nifty 50 index has been on a remarkable upward trajectory, scaling new heights and captivating investors with its bullish momentum. However, seasoned chartist Sudeep Shah, Head of Technical and Derivative Research at SBI Securities, urges a measured approach despite the rally. In a recent discussion, Shah highlighted the underlying risks and technical nuances that suggest the market's exuberance might be short-lived, advising traders to tread carefully while identifying selective opportunities in specific stocks.

Shah's caution stems from a detailed technical analysis of the broader market indices. The Nifty, which recently breached the 25,000 mark, has shown impressive gains, driven by positive global cues, robust domestic inflows, and sectoral rotations. Yet, Shah points out several red flags. He notes that the index is trading near overbought territories on key momentum indicators like the Relative Strength Index (RSI), which is hovering above 70 on daily charts—a classic signal of potential exhaustion. Additionally, the formation of a shooting star candlestick pattern in recent sessions indicates possible reversal pressures, especially if follow-through selling emerges. Shah emphasizes that while the short-term trend remains upward, supported by a series of higher highs and higher lows, the rally could face resistance around 25,200-25,300 levels. A breach below the immediate support at 24,800 might trigger a correction towards 24,500, he warns.

Delving deeper into sectoral dynamics, Shah expresses particular concern over the banking sector, which has been a laggard despite the overall market upswing. The Bank Nifty index, he observes, is struggling to sustain above its 20-day Exponential Moving Average (EMA), currently around 51,200. This technical hurdle, combined with subdued volumes in banking heavyweights, suggests that any broader market pullback could be amplified by weakness here. Shah attributes this to lingering concerns over asset quality, rising interest rates, and regulatory pressures, which might cap upside potential. On the flip side, he sees resilience in IT and FMCG sectors, where rotational buying has provided a cushion. For the midcap and smallcap spaces, Shah advises selectivity, noting that while the Nifty Midcap 100 has outperformed, valuations are stretched, with the index's price-to-earnings ratio nearing historical highs.

Despite his overarching caution, Shah remains optimistic about targeted stock picks, identifying four counters that exhibit strong technical setups for the next week. These recommendations are based on a blend of price action, volume trends, and momentum oscillators, offering traders potential entry points with defined risk-reward ratios.

First on his list is HDFC Bank, a banking giant that has shown signs of bottoming out after a prolonged downtrend. Shah highlights a bullish engulfing pattern on the weekly charts, accompanied by rising volumes, suggesting accumulation by smart money. He recommends buying on dips around Rs 1,620-1,640, with a stop loss at Rs 1,580 and a target of Rs 1,750 in the near term. The stock's breakout above its 50-day EMA reinforces this view, potentially driven by improving net interest margins and deposit growth.

Next, Shah is bullish on Larsen & Toubro (L&T), the engineering behemoth, which has formed a higher base pattern amid the infrastructure boom. Technical indicators show the stock trading above all key moving averages, with the MACD line crossing above the signal line, indicating upward momentum. He suggests accumulating between Rs 3,650-3,700, targeting Rs 3,900-4,000, with a stop loss at Rs 3,550. Shah attributes this positivity to L&T's strong order book and government capex push in railways and defense sectors.

In the pharmaceutical space, Sun Pharmaceutical Industries catches Shah's eye due to its resilient chart structure. The stock has broken out from a symmetrical triangle pattern on daily charts, backed by a surge in open interest in futures, pointing to fresh long positions. Shah advises buying at current levels around Rs 1,750, with an upside target of Rs 1,850 and a strict stop loss below Rs 1,680. Factors like robust US generic sales and pipeline approvals underpin this outlook, making it a defensive play amid market volatility.

Lastly, Shah recommends Tata Consumer Products from the FMCG sector, which has demonstrated a classic cup-and-handle formation, signaling continuation of its uptrend. The RSI is comfortably in bullish territory without being overbought, and increasing delivery volumes suggest institutional interest. He proposes entries around Rs 1,180-1,200, aiming for Rs 1,300, with a stop loss at Rs 1,140. This pick aligns with Shah's view on consumption recovery, driven by rural demand revival and festive season tailwinds.

Shah's overall strategy emphasizes risk management, advising traders to avoid over-leveraging and to monitor global developments, such as US Federal Reserve rate decisions and geopolitical tensions, which could influence domestic sentiment. He stresses the importance of trailing stop losses to protect gains, especially in a market where volatility, as measured by the India VIX, has ticked up slightly from recent lows. For positional traders, Shah suggests focusing on stocks with strong fundamentals overlaid with technical strength, rather than chasing momentum blindly.

In conclusion, while the Nifty's rally has fueled optimism, Sudeep Shah's analysis serves as a sobering reminder of the market's inherent uncertainties. By staying cautious and selective, investors can navigate potential pitfalls while capitalizing on high-conviction ideas like the four stocks highlighted. As always, Shah reiterates that these views are based on current technical setups and should be complemented with individual risk assessment and professional advice. This balanced perspective underscores the need for discipline in trading, ensuring that enthusiasm doesn't overshadow prudence in the pursuit of returns. (Word count: 852)

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Nifty Rally Caution: Sudeep Shah's Technical Analysis

Chartist Talk: Sudeep Shah Remains Cautious Amid Nifty's Rally, Bullish on Four Stocks for the Coming Week