The October series has proven to be one of the strongest in recent months, with the Sensex up nearly 4.6% month-to-date. The rally was driven by heavyweight banking stocks, renewed inflows from foreign institutional investors and positive global signals amid expectations of a rate cut by the US Federal Reserve.
The Nifty 50 and Sensex posted gains of 1.7% and 1.8% respectively this week, settling at the 25,710 and 83,952 levels. The festive cheer extended to the IPO market, where LG Electronics India made a spectacular debut at a 50% premium over its IPO price of Rs 1,710.1 per share on the NSE.
Institutional flows remain the backbone of the upward trend. During the week, domestic institutional investors made net purchases of Rs 16,247 crore, while foreign institutional investors injected Rs 556 crore. Yet the dynamics are more nuanced: On a monthly basis, FIIs recorded marginal net outflows of Rs 586 crore in cash even while holding net long positions worth Rs 2,729 crore in index futures, indicating tactical positioning rather than sustained conviction.
The rally was underpinned by strength in consumer-driven sectors and a broad-based recovery in real estate, healthcare and banking. Investor confidence was further boosted by easing asset quality concerns in the financial sector and expectations of improved volume growth in the festive quarter.
“Looking ahead, the trajectory of Indian equities will be determined by the ongoing earnings season and policy signals from major global central banks. Market optimism was boosted by clarity in India-US trade ties, with both sides tentatively agreeing to complete the first phase of the deal by November,” said Vinod Nair, head of research at Geojit Financial Services. The market was also strengthened by clarity in India-US trade ties. Both sides have tentatively agreed to complete the first phase of the deal in November, providing a constructive backdrop for domestic equities. Moreover, a strengthening Indian rupee and improving liquidity conditions have helped shield the domestic market from external headwinds. The technical design remains constructive, at least for the time being. Amol Athawale, VP Technical Research at Kotak Securities, notes that “the market texture is bullish in the near term,” with indices showing higher highs and higher lows on the daily and intraday charts. A long bullish candle has formed on the weekly charts, supporting the possibility of a further uptrend from current levels.
However, Athawale adds a crucial caveat: “Due to temporary overbought conditions, gains may be made at higher levels.” For traders, the key support zones are fixed at 25,550-25,350 for Nifty and 83,000-82,400 for Sensex, while the resistance levels are 26,000/84,400 and 26,300/85,300. Bank Nifty traders should keep a close eye on the 57,000 level; a break below that could trigger a broader unwind.
Ponmudi R, CEO of Enrich Money, highlights a potential vulnerability: While domestic investors remain firmly entrenched in the uptrend, FIIs are net short Rs 8,247 crore in equity futures, indicating ‘selective portfolio adjustments rather than widespread exits’. This selective positioning could accelerate profit taking if market momentum stalls.
The coming week will test investor resolve with a truncated trading calendar due to Diwali, but not before some crucial catalysts are delivered. The quarterly earnings of heavyweights like Reliance Industries, HDFC Bank and ICICI Bank are expected to set the tone for the broader market. The earnings season will be in full swing and the results of Colgate, Hindustan Unilever, Dr. Reddy’s Laboratories, SBI Life Insurance, Coforge and Kotak Mahindra Bank are expected to report.
The one-hour Diwali Special Muhurat Trading session will take place on October 21, marking the beginning of Samvat 2082, which will be closely watched for sentimental cues and festive cheer.
According to Ajit Mishra, SVP Research at Religare Broking, “The market enters the new week with an optimistic outlook. Cooling inflation, robust domestic macro fundamentals and strong earnings momentum provide a constructive foundation for the medium term.” However, he emphasizes that “investors should remain vigilant against external risks, including global trade tensions and geopolitical developments, that could lead to near-term volatility.”
The analyst prescription is clear: adopt a buy-on-dips approach, focusing on sectors that demonstrate consistent earnings visibility – particularly banking, FMCG and consumer discretionary. Within the broader market, fundamentally sound large and mid-cap stocks should be favored over small caps. IT and export-oriented stocks may remain volatile amid global uncertainty.
For now, the Diwali rally is real, but its sustainability depends on the quality of earnings, the actions of global central banks and whether technical overbought conditions can be managed without a significant correction. Investors should celebrate the festive gains but keep their portfolios hedged against the unexpected.
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