Nifty 50 index is slowly forming a high-risk chart pattern

The Nifty 50 index rallied to €24,680, its highest level since October 22, and 6.7% from its lowest point in November. It rallied after the Reserve Bank of India (RBI) left interest rates unchanged.

RBI interest rate decision

The Nifty 50 index has crawled back in the past few days as investors started to buy the dip. The rally happened as some investors anticipated that the RBI would slash interest rates after a series of weak economic numbers. 

In its interest rate decision, the RBI decided to leave rates unchanged at 6.50% and the cash reserve ratio at 4.50%. In a statement, Governor Das warned that inflation was still a big concern and that a rate cut would make things worse. 

He still left the door wide open for a rate cut in the first quarter of next year if inflation retreats. Recent economic data showed that the headline Consumer Price Index (CPI) rose from 5.49% in September to 6.21% in October, the highest level since August 2023. 

Analysts expect the upcoming CPI to move from 6.2% to 6.6% as food prices remain at an elevated level. 

Hopes of an RBA rate cut rose after the recent economic data showed that the economy was slowing. A report released recently showed that India’s economy grew by 5.4% in the last quarter, much lower than the expected 7.0%.

These numbers signaled that the Indian economy was not growing as was expected. That is in part because interest rates have remained prohibitively high, making it difficult for companies to borrow. Also, Narendra Modi has embraced some fiscal consolidation policies.

As a result, many analysts have slashed their GDP growth expectation for the year. The average estimate is that the economy will grow by about 6% this year, much lower than the 8.2% that happened last year. 

Analysts warn that the economy may continue slowing in the coming months as industrial production worsens. There are also concerns about the incoming Trump administration and its impact on the Indian economy. 

Indian stocks are lagging their global peers

Meanwhile, data shows that Indian companies underperformed their global peers this year. The Nifty 50 index has jumped by 14% this year, while the German DAX index has soared by over 22%. Similarly, in Spain, the IBEX 35 index has jumped by 20%, while in the United States, the Nasdaq 100 and S&P 500 indices jumped by over 25% this year. 

Trent, the fashion retail company owned by Tata Group has been the best-performing company in the Nifty 50 index this year as it jumped by over 127%. The other notable movers were firms like SBI, Power Grid, Mahindra & Mahindra, ICICI Bank, Bharat Electronics, and Bajaj Auto. All these shares have jumped by double digits this year. 

Nifty 50 index analysis

NIFTY chart by TradingView

The daily chart shows that the Nifty index crawled back recently after falling to a low of €23,280. This rebound was because analysts and investors anticipated that the RBI would slash interest rates this week, which did not happen. 

On the positive side, the index has risen above the 50-day and 200-day Exponential Moving Averages (EMA). Oscillators are also highly positive.

The risk, however, is that the index has formed a rising broadening wedge chart pattern shown in red. A wedge is one of the most common reversal patterns in the market.

Therefore, while the index may keep rising, there is a risk that it will have a bearish breakdown in 2025. The risk of using the wedge pattern is that, like the cup and handle, it takes many months or even years to form.

In this case, the Nifty 50 index will remain upbeat as long as it is above the lower line of the wedge pattern. If it drops below €23,280, the next point to watch will be at  €22,500.

The alternative scenario is where the index continues rising and reaches the resistance point at €26,000.

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