Will The Stock Market Crash Or Bounce Back This Week? Nifty Forecast, FII Selling & What Investors Should Do Now

As Indian equities open the first full trading week of August, investor sentiment remains cautious, weighed down by persistent foreign outflows, underwhelming earnings, and a deteriorating technical structure. After closing sharply lower on August 1, the Sensex dropped 585.67 points or 0.72% to 80,599.91, while the Nifty fell 203 points or 0.82% to settle at 24,565.35.

Early indicators suggest a muted start. At 7:06 am, Gift Nifty was trading at 24,685.50, up by just 16.50 points or 0.07%, pointing to a flat-to-positive opening. But the big question remains: how will the market behave in the days ahead?

What to watch today 
"The benchmark index Nifty wrapped up its fifth consecutive week in the red — its longest losing streak since August 2023," said Sudeep Shah, Vice President and Head of Technical & Derivative Research at SBI Securities.

Shah emphasized a bearish structure forming on the weekly charts. “Back-to-back bearish candles with long upper shadows suggest rejection at higher levels. Bulls have attempted to lift the market, but every rise has been met with selling pressure,” he noted.

These long upper wicks are typically seen as signals that while buying interest exists, it's not strong enough to sustain momentum. "It reflects a market that’s finding it hard to build on gains, weighed down by renewed supply pressure and cautious sentiment," Shah added.

Among key factors fueling the weakness:
Renewed concerns around the progress of India–US trade negotiations
Persistent FII outflows
Disappointing Q1 corporate earnings

Midcap and Smallcap Indices Underperform
The weakness isn't isolated to large-cap indices. Both the Nifty Midcap and Nifty Smallcap 100 have underperformed for the second consecutive week.
According to Shah, “The ratio charts comparing these broader indices to the Nifty have slipped to their lowest levels in nearly two months, pointing to deteriorating relative strength. This signals increasing caution among market participants regarding mid and small-cap exposures.”

Key Support Levels to Watch:
Shah highlights the 24,000–23,900 zone as a critical medium-term support base for Nifty. “Any breach below this range could trigger a deeper corrective phase,” he warned.

Bank Nifty: Losing Steam After Four-Month Rally
Bank Nifty closed July with a bearish candle, indicating that the banking index may have exhausted its uptrend, at least temporarily.
"After trading in a narrow range of 2,081 points in July, its tightest since July 2023, the index closed the month negatively,” said Shah.

Support Levels:
Immediate: 55,200–55,100
Below that: 54,600

Resistance Levels:
56,300–56,400 zone

A break below support could further weigh on the broader market sentiment.

FII Activity: Rs 50,000 Cr Outflows and a 10% Long-Short Ratio
Foreign institutional investors (FIIs) have sold equities worth nearly Rs 50,000 crore in July so far. In derivatives, their long-short ratio has plummeted to just 10%, the lowest in recent memory.

“This reflects aggressive short positioning and a clearly bearish stance from institutional players,” said Shah.
However, this excessive pessimism could also open the door for a technical bounce. “Whenever the FII long-short ratio drops below the 10-15% range, markets have historically shown limited downside and occasionally even bounced back,” he noted.

July Rollover Data: Rising Volatility, Weak Sentiment
The July series saw 16 sessions with either gap-up or gap-down openings. a clear indicator of heightened market uncertainty. Nifty Futures ended the July series nearly 3% lower, snapping a four-series winning streak.

Rollover in Nifty Futures declined to 75.71% in July, below both June’s 79.53% and the three-month average of 78.11%, signaling traders’ hesitation in carrying forward bullish bets.
Even though the number of shares rolled increased to 164 lakhs from 162 lakhs last month, the rollover cost nudged up slightly to 0.40% (vs. a 3-month average of 0.39%), suggesting traders are paying more to hedge against uncertainty.

Trader Strategy: Defensive Play, Technical Discipline
With volatility back in focus, Shah advised traders to stay cautious and selective. His key suggestions include:
Stick to quality stocks with strong fundamentals
Avoid overtrading; follow risk management
Align trades with the larger trend
Use multi-timeframe analysis
Wait for clear price confirmations before entering

This disciplined approach can help minimise whipsaw losses in uncertain environments.

Sectoral Trends: Weakness in Defence, IT & PSU Banks; FMCG Shows Resilience

From a sectoral view, the pain is widespread. Indices under pressure include:
Nifty IT
India Defence
Oil & Gas
Realty
Metal
PSU Banks
Capital Market
CPSE & PSE

However, some defensive and consumption-oriented sectors are offering relative safety.

“Nifty FMCG is showing strength on the charts. It is likely to outperform in the near term due to a stable structure and consistent buying interest on dips,” said Shah.

Stock Picks for the Week
For investors and short-term traders, the following stocks are expected to outperform:
Jindal Stainless Ltd (JSL)
Emami Ltd
Hyundai Motors
Jio Financial Services
Graphite India
IndiGo Airlines

Read More - Cues To Watch Next Week: Key Factors Affecting Stock Market Next Week

These names are showing favourable technical patterns and relative strength compared to the broader market.

Stay Nimble, Watch Key Levels
With Nifty struggling near critical support and FIIs pulling out aggressively, the stock market next week is poised for continued volatility. Investors should monitor the 24,000–23,900 zone on Nifty closely, while watching Bank Nifty's ability to stay above 55,100.

In the current phase, defensive positioning, capital protection, and selective stock picking will be key to navigating the market successfully.

Disclaimer

The views expressed in this article are purely informational and Republic Media Network does not vouch for, promote or endorse any opinions stated by any third party. Stock market and Mutual Fund investments are subject to market risks and readers are advised to seek expert advice before investing in stocks, derivatives and Mutual Funds