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Volatility to prevail amid Tariff development and GST council Metting

ICICIdirect Research 29 Aug 2025 DISCLAIMER

Equity benchmark extended the decline for the second consecutive week, closing below the prior week’s low, and settled the week at 24485 down 1.50%. Nifty midcap and small cap relatively underperformed the benchmark by declining 2.5%, each.
Markets are weighed down by tariff concerns, persistent FII's outflows, and rupee depreciating. Sectorally, except IT, all indices closed in red. PSU bank, Realty and Financial services were the major laggards.
What to expect: Nifty prolonged its lower-low-high structure for the eight-weeks, except for a brief rebound in mid-August, and breached below the 100-day EMA, however past six sessions >650 points decline has hauled daily stochastic oscillator in oversold territory (placed at 7), signalling caution against aggressive short position at current levels.
Price Structure: Structurally, Since April 2025, there has been five instances of intermediate corrections in the range of 3–4% within the ongoing bull market, each followed by a gradual recovery. We expect same rhythm to continue with the current correction of 2.5% is expected to find support near 24000- 24,200, aligning with the 200-day EMA. Holding these supports, there is a high probability of demand emerging at lower levels and recovery towards 24900 levels.
Focus should be on accumulating quality stocks backed by strong earnings, especially those poised to benefit from next-generation GST reforms and upcoming festive season.
Market breadth: The % of stocks above 50 days EMA has entered in the oversold zone of 25-30 indicating the corrective phase approaching exhaustion and a potential rebound could emerge in the near term.
Gap Area: Nifty is once again nearing the mid-May gap support zone of 24,164–24,378, a level that has repeatedly cushioned declines in the past, thereby increasing the probability of a rebound.
Broader Market: Both Nifty Midcap and small cap has been trading in the vicinity of 52-week EMA which has been held since April 2025 offering an incremental buying opportunity.


Key Monitorable for the coming week:
GST rate rationalisation
Development of Bilateral trade deal negotiations
U.S. Dollar index continues to trade below the past two years breakdown area of 100, indicating corrective bias while crude oil closed the week on flat basis.
 
 

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