Nifty Breakout Levels: Rising global bond yields are becoming the biggest threat to equity markets, replacing oil as the key risk indicator, said CLSA technical analyst Laurence Balanco.
He warned that tightening liquidity conditions and weakness in AI-led semiconductor stocks could trigger a broader global risk-off move.
While Balanco sees downside risk for the Nifty and continued pressure on banks and autos, he remained constructive on Indian midcaps, select pharma names, telecom stocks, and certain Adani Group companies showing strong technical setups.
"Cyclical side of the market also correcting...difficult to see major breakout for Nifty over next 4 months," said Balanco.
He highlighted weakness in the SOX index and Korea's Kospi 200, both of which have slipped below their short-term moving averages. He also noted that commodities and cyclicals have started rolling over as higher real rates pressure both industrial and precious metals.
Gold And Silver Lose Momentum
Bilanco said rising real yields are creating headwinds for gold and silver prices. Silver had briefly broken above key resistance levels last week, but has since sharply reversed and moved back into its previous trading range.
Gold, too, remains capped near its 50-day moving average, with both metals now trading within ranges seen during March and April.
Oil Remains Range-Bound, But Inflation Concerns Persist
On crude oil, Bilanco said Brent has largely stayed within a wide $95-$119 per barrel range after briefly touching around $119.50 earlier this year.
However, he believes the persistence of elevated oil prices is contributing to rising inflation concerns and bond yield breakouts. Markets, he said, are now beginning to price in the risk of higher inflation.
Nifty Could Retest Lower End Of Trading Range
Bilanco said the Nifty has remained range-bound since late 2024, with resistance near 26,300 and support around 21,700-21,800.
Given the current global risk-off mood, he sees roughly 5% downside risk for the index, with the possibility of a retest of lower support levels.
Mid-Caps Showing Surprising Strength
Despite weakness in the benchmark indices, Bilanco said Indian mid-caps continue to outperform. He noted that while the Nifty has struggled below its 200-day moving average, mid-cap indices remain close to their 2024-25 highs.
He attributed this resilience partly to domestic fund flows, as foreign investors are believed to have lower exposure to mid-caps compared to large-caps.
Banks And Autos Emerging As Weak Spots
Bilanco identified banks and automobiles as the weakest sectors currently.
He specifically highlighted SBI's break below the 1,000 mark as an important technical signal. Autos are also showing signs of fatigue, with several stocks making lower highs compared to February peaks.
Bajaj Auto Better Placed Among Auto Stocks
While Bilanco sees broader weakness in autos, he said Bajaj Auto remains one of the better-looking charts in the sector.
However, he noted that stocks like Hero MotoCorp, TVS Motor, Eicher Motors and Ashok Leyland are showing rollover patterns and appear vulnerable to further downside.
Bharti Airtel Stands Out As Defensive Bet
Among telecom names, Bilanco said Bharti Airtel appears relatively strong. He noted that the stock has stabilised over the past three months and is attempting to move above its 200-day moving average.
He sees Bharti Airtel as a low-volatility defensive play in the current uncertain environment.
IT Rally Looks Like Counter-Trend Move
Bilanco said the recent rebound in IT stocks appears more like a counter-trend rally rather than the start of a sustained uptrend.
He added that mid-cap IT names such as Persistent Systems and Coforge are relatively stronger than large-cap peers like Infosys and HCLTech, which continue to face overhead resistance near breakdown levels.
Pharma Showing Relative Outperformance
Bilanco highlighted selective strength in the pharmaceutical sector, especially in mid-cap names. He pointed to Aurobindo Pharma as a notable breakout candidate and added that the broader pharma index has recently broken out of a long trading range.
Sun Pharma was also identified as a relatively strong large-cap pharma stock.
Adani Group Charts Look Strong
Bilanco said several Adani Group stocks are showing strong technical setups after spending months in consolidation.
He specifically mentioned Adani Ports and Adani Green, saying the group's stocks have formed strong bases and are now breaking out of major consolidation patterns.
Best-Case Scenario: Nifty Could Target 35,000-37,000
Despite near-term caution, Bilanco remains constructive on the long-term outlook. He said a decisive breakout above the 26,000-26,300 zone could trigger a major rerating for Indian equities.
In such a scenario, he sees the Nifty potentially moving towards the 35,000-37,000 range over time.
Near-Term Focus Remains On Holding Key Support
For now, Bilanco believes the market is more likely to retest the lower end of the current range before any major breakout happens. He stressed that holding above the 21,700 level over the next few months remains critical for the broader bullish structure to stay intact.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money related decisions.)
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