Benchmark indices close below crucial support levels; experts fear further slide

The indices closed below their 200-DMA, first time since Sept 2013

Following a sharp correction through the past two months, India's benchmark stock market indices - the Sensex and the Nifty - ended below their 200-day moving average (DMA) on Monday, the first time since September 2013.

The 200-DMA, a yearly trading average, is a technical indicator to gauge the strength of the market. A security is considered to be in bullish zone if it trades above this level.

On a couple of occasions in the past year, the benchmark indices saw sharp rebounds around their 200-DMA.

On Monday, the Sensex ended at 27,176.99, down 261 points, or 0.95 per cent, and below its 200-DMA of 27,482.4. The 50-share Nifty ended at 8,213.80, down 91.5 points, or 1.1 per cent, slightly below its yearly trading average of 8,215.

"The benchmark indices closing below their 200-DMA is a concern. A rebound was expected around the 200-DMA levels. However, that didn't happen. Selling by foreign investors and weak corporate earnings are hurting the market," said Yogesh Radke, head (quantitative research) at Edelweiss Financial Securities.

Since breaching this level the previous time, the Indian market has enjoyed a strong run. The benchmark Sensex traded above this level for about 400 trading days and saw a sharp 40 per cent rally during this period.

On Monday, the Sensex ended at its lowest level since January 7, 2015, following a near-three per cent fall in key stocks such as State Bank of India, HDFC and Hindustan Unilever.

Selling by foreign investors due to concern about retrospective taxation and disappointing March quarter earnings have continued to weigh on the market. Foreign institutional investors continued to pull out money from the Indian market, selling shares worth about Rs 1,750 crore on Monday, provisional data showed.

According to experts, the market is expected to slide another two-five per cent from current levels. "The trend is looking weak. Going by price patterns, the Nifty could go to 7,980," said Shubham Agarwal, senior analyst technical equities at Motilal Oswal.

Experts believe the market is still slightly above its 200-day exponential moving average (EMA) and if it decisively closes below this level, it could see a sharper correction (while the DMA is a simple average, the EMA gives importance to recent data points).

"There could be further downward pressure till 8,000 levels (for the Nifty), as traders will look to unwind their positions ahead of the futures and options expiry. Till the time the indices close convincingly above the 200-DMA, the sentiment might continue to remain weak," said Radke.

The market is expected to remain volatile ahead of the expiry of April series derivative contracts on Thursday.

Experts say investors will eye signs of an improvement in corporate earnings, a two-day US Federal Reserve meeting beginning on Tuesday and the fate of key Bills in the ongoing session of Parliament.