Market Outlook by Anuj Singhal: Price action in midcaps crucial for the next few sessions

Tuesday's price action in the broader markets gave a gentle reminder to people that midcaps and smallcaps can fall too. Both Midcap and Smallcap indices saw their biggest single-day fall in 2023. The fact that it happened nine-and-a-half months into the year shows the kind of rally these stocks have had.

Going forward, the price action in midcap stocks will be crucial for the next few days, although it is possible that Tuesday's drop was a one-off.

We at CNBC-TV18 have reached out to the hedge fund in question over social media rumours of portfolio liquidation that potentially caused Tuesday's fall. You can read more on that here.

For the next few days, staying in largecaps and the Nifty 50 would be ideal. Once stability returns, the midcap stocks will bounce back sharply.

The Nifty Bank will be in focus for today's session owing to some very positive news coming from the inflation side. CPI in August cooled to 6.8 percent from 7.4 percent in July, although it remained above the RBI's target range.

Economists that CNBC-TV18 spoke to believe that the Reserve Bank of India may cut interest rates in December if the US Federal Reserve takes a pause at its next meeting. Focus will also be on inflation data coming out of the US later this evening, as it may act as a potential catalyst for the Fed's next move.

Basic texture of the market remains buy on dips. Tuesday's low of 19,914 will be the first support zone for the Nifty 50. A bigger support, as per the options base and also the five-day moving average will be 19,840. Tuesday's high and options zone of 20,080 and 20,120 will act as a barrier on the upside.

As we mentioned earlier, the Nifty Bank may get some support from the inflation data. The index is still nearly 850 points away from its all-time high. Tuesday's low of 45,322 will act as the first support for the index, followed by the options-based support of 45,200. While 45,646 will be the first barrier on the upside based on options data, Tuesday's high of 45,893 will act as a bigger resistance for the index.