After declining through most of August, Nifty has entered a consolidation phase, with lacklustre trades seen on most days in the last week. While Nifty is near the 50-DMA, suggesting that it is supported by a major fall for now, sectoral indices appear to be positioned differently.
Most major Nifty indices like Auto, Bank, Energy, Financial Services, FMCG and PSU bank have slipped below the 20-day SMA, with the FMCG index the farthest at 3.15%. Meanwhile, IT, metal, media, pharma, realty and consumer durables are trading above this key moving average, with the metal index the farthest at 2.6%.
NSE monthly expiry did see FIIs reducing their index future shorts substantially, but only to raise them in the subsequent days to end the week with a 3.86% rise in short contracts. Meanwhile, FII index long positions were the lowest in August, after expiry, and ended the week with a 7.3% decline in long contracts. The long-short ratio of index futures is now at 9.6, the lowest in August so far.
Meanwhile, boosted FIIs appeared to have stopped positioning for a rise, having put a stop to short covering of their index futures, a trend that had been visible since late July.
FII action on Friday reflected the same, despite Nifty appearing to hold support and refraining from large falls. FIIs boosted shorts by 3%, while reducing longs by 7%. Weekly data shows that this trend is more pronounced, with shorts seen boosted by a whopping 14.7%, though longs were reduced by just 2%. This turn of events has driven the long-short ratio of the FII index future segment to just 7.8, the lowest this month, and closing in on record lows.
The Nifty Pharma Index continues to present a broadly constructive technical picture, moving steadily within a rising wedge formation while preserving its sequence of higher highs and higher lows. This structure indicates that buying interest has remained consistent on declines, helping the sector sustain its upward bias.
Momentum indicators are also beginning to align favourably, with the MACD moving closer to a bullish crossover. In addition, the formation of a weekly bullish Marubozu candle points to firm participation and reflects strong conviction among buyers.
The derivative setup adds further weight to this positive view. Nearly 75% of pharma stock futures saw fresh long build-up during the week, while close to 60% witnessed additional long positions on Friday alone. This suggests that traders are increasingly positioning for continued strength in the sector, with near-term sentiment still leaning towards further upside.
Among the key constituents, Divi’s Laboratories, Laurus Labs, Wockhardt, and Sun Pharma continue to exhibit strong technical strength and appear well placed to support the sector’s upward move.
As long as the index remains above the crucial support zone of 26,600, the prevailing uptrend is likely to stay intact. Sustained strength above this level could open the way for a move towards 27,200, followed by the next potential target near 27,800.
The Nifty Financial Services Index is currently positioned at an important technical juncture, where the next directional move could prove meaningful. On the weekly chart, the index has formed a Doji candle close to its rising trendline support, signalling hesitation and a lack of clear conviction among market participants.
At the same time, the MACD is attempting to move above its signal line, while the weekly RSI remains near the neutral 50 mark. Together, these indicators suggest that the index is still searching for a decisive trend.
Derivative data, however, continues to reflect caution. Around 80% of financial services stock futures witnessed bearish positioning on Friday, while nearly 40% registered fresh short additions on a week-on-week basis. This points to growing scepticism among traders and suggests that market participants are yet to build confidence in a sustained recovery.
Stock-specific trends also remain subdued, with major constituents such as ICICI Bank, Bajaj Finance, Shriram Finance, and Cholafin showing signs of weakness on the charts. Although SBI continues to demonstrate relative resilience, the weakness across several other heavyweight names could keep the broader index under pressure unless participation improves meaningfully.
The 25,900-25,700 zone therefore remains a critical support area to watch. A decisive break below this band could intensify selling pressure and drag the index lower towards 25,200-25,000. On the upside, the 26,480-26,800 region remains the key resistance zone that needs to be crossed convincingly for bullish momentum to re-emerge.