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Nifty: Six-month consolidation persists; broader markets and banks show relative resilience

ICICIdirect Research 18 Sep 2026 DISCLAIMER

Nifty has remained in a broad 22,200–25,000 consolidation range over the past six months, with the index down around 1.9% during the period. In contrast, Bank Nifty has gained around 1.35%, while broader-market indices have continued to show relative resilience, indicating selective participation beyond the benchmark.

The week remained volatile amid elevated crude oil prices, geopolitical risks and a 25-bps US Federal Reserve rate hike ended the week to close on flat note at 23330 . Persistent FII selling continued to weigh on sentiment, although domestic institutional buying provided support. Easing crude prices towards the end of the week offered some relief to Indian equities.

What we expect:

  • Market direction will hinge primarily on global macroeconomic developments . On the domestic front, any cool-off in crude oil combined with Rupee depreciation could provide cushion for the Nifty. 
  • Structurally, past six months trading activity has been confined in entire March month’s trading range (22200-25000). Such prolonged range contractions are rare which systematically set the stage for a directional move. Hence, as long as index holds swing low of 22700, we believe buy on dips structure remains intact
  • Sustaining above 23500 is a prerequisite to confirm a structural pause in the corrective leg and open an extended pullback toward 24000; Else, price action is likely to remain confined to a 23100–23500 consolidation band.
  • Relative strength in Bank Nifty and resilience in broader markets remain important signals for participation during any recovery attempt.

The corrective phase is becoming stretched, supported by weekly stochastic at 13  indicating an oversold zone.

  • Sector rotation: Sector rotation: Over six months, Realty (+32.55%), Pharma (+26.29%), and Media (+24.73%) have outperformed, while FMCG (+0.93%), IT(+1.35%), and PSU Bank (+5.97%)  have lagged.
  • With past three weeks breather, Nifty midcap and small cap indices retested its 20 months consolidation breakout. Strong buying demand seems to be emerging around the key moving average
  • Broader-market participation: Midcap and Smallcap indices have maintained relative resilience versus Nifty, while sectoral performance remains highly divergent, highlighting continued stock- and sector-specific rotation.
  • Institutional flows: FIIs remained net sellers at ₹8219 crore, during the week, while DIIs recorded net buying of ₹10212 crore  providing a partial counterbalance to foreign outflows.
  • On the commodity front Crude Oil ended the week on negative (-1%) close .The lack of follow-through strength in crude oil above last week’s high ($110) would result in a pullback rally in Nifty

Key Factors to Monitor

A) Geopolitical developments and energy-supply risks

B) Crude oil trajectory and global inflation expectations
C) US yields, dollar strength and emerging-market flows

D) FII net short position

  • Foreign Institutional Investors (FIIs) have built up once again massive bearish position in Indian equities, pushing their net index short position to nearly 300,000 contracts following a fresh round of selling of ~15,000 Cr in September so far.
  • Extreme Positioning: Current FII net short levels have surpassed even the extremes seen during the March downturns. While heavily bearish, such stretched positioning often signals an oversold market that should be considered for a pause or reversal.
  • This heavy shorting appears to be driven by macro uncertainty surrounding the upcoming US Federal Reserve meeting and intensifying geopolitical tensions. With positions stretched to historical extremes, any positive trigger could spark aggressive short covering, particularly as we approach monthly derivative expiry. Since Fed outcome has been digested by markets, a round of closure shouldn’t be ruled out.

Index Rebalancing: Major index rebalancing scheduled for late September could generate significant institutional inflows and might help a market recovery.

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