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Nifty 50 Drops Further As Stock Market Decline Persists

Nifty 50 Index declined for the third consecutive session on Tuesday, recording a decline of -0.58 percent to stand at 22317 points. The index’s decline is a reflection of a wider depreciation by the Indian stock market in the last week, which is largely attributed to a selloff by foreign institutional investors. India is in an election year, and there’s much at stake for investors.

While the ruling Bharatiya Janata Party is expected to retain control of the government, the electoral environment historically creates a jittery business environment. That said, the Indian economy remains strong, forming a strong basis for a continuation of a strong run by the stock market after the election period. However, there is the growing concern that the current 6.5% interest rate could limit the headroom for growth. That could add to the downward pressure on the Nifty 50 Index, much as the foreign institutional investors hold a significant sway.

In related news, the Indian service PMI fell in April, coming in at 60.8, down from 61.2 in March. Furthermore, it is significantly below the forecast estimate of 61.7. This could signify an underlying pressure in the market that could come to the fore in the coming months.

Technical analysis

Concurrently to the decline in the index performance, there has been a corresponding decline in the volume of trading. This signals an element of control by the sellers, which is supported by a weakening Relative Strength Index.  The sellers are likely to retain control if resistance remains at 22422.55. That could break the support at 22236.60 in extension and potentially test 22032.95. Alternatively, a move above 22422.55 will favour the bulls to take control. However, they will encounter resistance at 22617.35. A move above that point will invalidate the downside narrative and potentially build momentum to test 22803.30.