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Domestic markets are volatile ahead of the state election, seeing a sharp decline led by FII selling and weak global signals. Indian markets opened in red after mixed Asian market signals as investors continued to monitor the situation surrounding the Ukraine crisis and digest US jobs data and central bank moves in the region. During the afternoon session, markets added losses to continue weak trading amid continued foreign fund outflows. Foreign portfolio investors (FPIs) have withdrawn up to Rs 6,834 crore from Indian markets in the first four trading sessions in February. US stock markets were under pressure as strong US jobs data raised fears of a stronger-than-expected Fed rate hike, pushing bond yields higher. The market ended February 7th lower for the third straight day as auto, FMCG, IT, banking, healthcare, real estate and capital goods stocks sold off. At the close, the Sensex was down 1023 points to 57621 and the Nifty down 302 points to 17213.

Market volatility is likely to continue given the high probability of a rate hike by the RBI given domestic inflation and tightening monetary policy by global central banks. The forthcoming MPC will meet in the shadow of the Union Budget for FY23, which has rightly maintained its focus on growth but at the cost of heavy market borrowing. At the upcoming meeting, the MPC is likely to acknowledge the inevitability of monetary policy normalization and the challenges we face as global central banks accelerate their fight against inflation. However, the recent sharp rise in bond yields may have already tightened local financial conditions a little too quickly for the RBI's comfort. We therefore expect MPC to start a gradual tightening cycle and turn its focus a bit more on inflation as Brent crude is near $100 a barrel. First, we expect the MPC to normalize the repo rate reverse repo corridor (to 25 basis points) over the next two sessions, starting with a 20 basis point hike in the reverse repo rate in February. Subsequently, the MPC could change its accommodative monetary policy stance to neutral and eventually start a moderate rate hike cycle. With monetary policy normalization underway, RBI's support for bond markets is likely to remain limited going forward, even if headline inflation stays within the RBI's target range. Difficult as it may be, RBI must juggle non-disruptively between its goals of normalizing policy and managing the government's lending program in FY23. 

The market got off to a weak start and selling was accentuated throughout the session as the index ended the session at the 17213 level down 302 points. Bank Nifty ended the session at 37995, down 793 points. On the technical front, the Nifty has traded lower highs and lower lows for the past three trading sessions, suggesting weakness on the meter for now. Additionally, the index has shown a breakdown of the rising trend line and held below it, as well as traded below the Bollinger middle band, suggesting downward movement of the counter. On an hourly chart, the index is trading below 21*50-HMA with a negative crossover, indicating weakness for the next session. Additionally, the daily momentum indicators Stochastic and MACD are also trading with a negative crossover, making prices weaker. Currently, the index has support at 17100 levels while resistance is at 17550 levels. Bank Nifty has support at 37500 while resistance lies at 39500.0

Support: 17150, 17000, 16850

Resistance: 17300, 17450, 17600