RBI MPC meeting, US-India trade talks, Pharma tariffs, What will move markets next week? Check details

Indian markets experienced a sharp reversal last week, breaking a three-week winning streak. The NIFTY50 index posted the largest weekly decline seen in nearly six months. The decline was driven by ongoing selling by Foreign Institutional Investors (FIIs), new U.S. tariffs on pharmaceuticals, higher visa fees, a falling rupee and a rebound in dollar.

Meanwhile, the broader market also witnessed significant selling pressure, with the small- and mid-cap indices seeing sharp losses. The NIFTY Midcap 150 index fell by 4.2% over the course of the week, while the Smallcap 250 dropped by 4.7%. This reflects a clear shift towards risk aversion and profit-booking amid heightened volatility.

On the sectoral front, IT (-7.8%) and Pharmaceuticals (-5.2%) led the slide, weighed down by U.S. President Trump’s announcement of 100% tariffs on branded drugs and a significant increase in H-1B visa fees, which has damaged sector sentiment. Defensive sectors such as FMCG (-2.5%) also corrected, mirroring broader risk-off moves. Meanwhile, relative outperformance was seen only in Metals (-1.0%).

Market breadth

The breadth of the NIFTY50 index saw a sharp reversal, with the percentage of index stocks trading above their 50-day moving average dropping swiftly below the 50% threshold. The retracement follows last week's elevated readings, indicating a substantial decline.

The breadth of the index slipped to 44%, inching closer to the neutral zone, highlighting the shift to a more cautious approach. If the reading of the breadth indicator remains below the threshold of 50%, this would suggest a further deterioration in market sentiment.

FIIs positioning in the index

Foreign Institutional Investors (FIIs) maintained their bearish stance in index futures, sustaining a long-to-short ratio close to 14:86. They increased their short positions, pushing the net short open interest by 14% to around negative 1,60,000 contracts. This escalation in short futures exposure further highlights FIIs' cautious outlook and reinforces their negative view of the market.

The activity in the derivatives segment was in line with the cash market segment. The FIIs have offloaded shares worth ₹30,000 crore in September of which ₹17,000 crore has happened in the last five trading sessions. Meanwhile, Domestic Investors supported the markets and have bought shares worth ₹13,520 crore.

NIFTY 50 index

The NIFTY50 index fell below its 21-week exponential moving average, creating a clear bearish candle on the weekly chart. This move also saw the index fall below its previous two-week lows, thereby ending its three-week winning streak. Looking ahead, the index is approaching a key support zone near 24,300. A decisive close below this level could trigger further downside movement. Conversely, immediate resistance has shifted to the 25,300 area, which now poses a significant obstacle to any potential rebound.

In India, the Reserve Bank of India is widely expected to keep the repo rate at 5.5% during its upcoming policy meeting on 1 October. Experts anticipate stable inflation and recent GST reforms as reasons for a pause. Although inflation has remained low and Q1 GDP was strong at 7.8%, the RBI is likely to adopt a cautious approach due to global uncertainties. Markets will be closely monitoring the statements of the RBI Governor on inflation outlook or growth projections.

Following this sharp decline, the NIFTY50 is now approaching a critical support zone near its 200-day EMA, which is currently at 24,389, just 1% below the close on 26 September. Price action around this level will be crucial in the coming sessions. A decisive close below the 200-day EMA could lead to further weakness.

On the other hand, unless it recovers immediate resistance of 25,100 on a closing basis, the index is likely to continue to show a sell-on-rise bias.