Nifty needs to close above 23,400 to trigger short covering; Federal Bank top pick: Dharmesh Shah

Indian equity markets have been grinding through a corrective phase marked by lower highs and lower lows, but one technical analyst sees a potential inflection point forming. Dharmesh Shah, AVP Technical Analyst at ICICI Direct, laid out his short-term roadmap for Nifty and Bank Nifty in an interview with ET Now, flagging a critical resistance zone and a breakout stock to watch.

Shah noted that across recent trading sessions the Nifty has been making a consistent lower-top, lower-bottom formation, with no session closing above the previous session's high. That changes, he said, only if the index manages a decisive close above 23,350 to 23,400, a confluence zone where the falling trendline and the 10-day exponential moving average (EMA) are both converging.

"The RSI is sitting near oversold territory around 20. Even a minor positive trigger at this stage could be enough to ignite a short-covering move in the Nifty," says Shah.

On the downside, Shah sees 22,700 to 22,800 as a strong support band he expects to hold through this corrective phase. His upside target for Nifty, once the breakout above 23,400 to 23,500 is confirmed, stands at 23,800.

"Any move above 23,400 could create a short covering rally. Bank Nifty is clearly outperforming and that trend looks more promising going forward," says Shah.

Bank Nifty target at 56,500

The more compelling setup, according to Shah, is in Bank Nifty. Over the last five to six sessions, banking stocks, both private and PSU, have been visibly outperforming the broader Nifty. He pointed to weekly charts of major private and public sector banks as looking structurally stronger, and given Bank Nifty's roughly 35% weight in the Nifty composition, its relative strength matters significantly for the broader index. His target for Bank Nifty is 56,500.

On stock-specific opportunities in the current volatile environment, Shah's top pick sits squarely within the banking space. Federal Bank, he said, has been outperforming for the past three to four weeks. The stock had been consolidating in a range since September 2025 before finally staging a breakout, making it technically well-positioned for a fresh leg upward.

"Federal Bank has witnessed a clear breakout from its multi-month range. We expect the stock to head towards 340, with a stop loss placed at 295."

The broader message from Shah is one of cautious optimism. Markets are oversold and expiry-day dynamics are producing intraday spikes, but the underlying trend remains corrective until Nifty establishes a close above the 23,400 mark. Investors watching for a directional signal should track that level closely in the sessions ahead.

Key levels to watch: Nifty & Bank Nifty

Nifty Support: 22,700 – 22,800

Expected to hold in current correction

Nifty Resistance: 23,350 – 23,400

Falling trendline + 10-day EMA confluence

Nifty Target: 23,800

On confirmed breakout above 23,500

Bank Nifty Target: 56,500

Supported by private & PSU bank outperformance

Top Pick: Federal Bank

Target: ₹340
Stop Loss: ₹295

Thesis: Range breakout after multi-month consolidation

Disclaimer: The views and stock recommendations expressed above are those of the analyst and do not represent the editorial position of this publication.