Can Nifty, Sensex extend gains after rallying up to 2% last week? 4 factors to watch on Monday

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The Sensex rose 308 points to close near 74,460 on Friday, while the Nifty 50 advanced 116 points to settle at 23,053. In contrast, broader markets came under heavy selling pressure, with the Nifty Midcap 100 and Nifty Smallcap 250 indices declining by up to 2%.

Here are 4 factors that D-Street investors will watch out for

1.) Oil prices

Oil climbed 14% in October to settle at its highest levels in six months, as concerns over a possible escalation in the Iran war after the US midterm elections added to supply worries.

According to a Reuters report, oil markets could see further volatility over the next couple of weeks amid Israel's recent elections and the US midterm elections scheduled for November 3, according to a briefing by Saxo Bank on Thursday. The Danish bank expects crude prices to remain in a higher range of $70 to $90 a barrel even after the conflict ends, compared with the pre-war range of $60 to $70.

The threat of further supply disruptions has added to expectations of higher crude prices. Daan Struyven, co-head of global commodities research at Goldman Sachs, said recent attacks had shown how disruptions to shipping could spread and become more severe. Goldman Sachs estimates that oil prices could climb to $120 a barrel if attacks on vessels in the Middle East intensify. However, prices could decline towards $80 a barrel if exports return to normal.

2.) FII activity

During the last four trading days ending October 30, FPIs were buyers in three sessions in the cash market. FIIs turned net buyers to the tune of Rs 6,305 crore, snapping a 10-week selling streak. They bought equities in three of the five trading sessions, driving a sharp market recovery.

VK Vijayakumar, chief investment strategist at Geojit Investments Ltd, said several factors are supporting the positive outlook for Indian equities. First, the US Federal Reserve's decision to hold interest rates is favourable for global equity markets. Second, valuations in the Indian market, particularly among largecap stocks, have become attractive.

More importantly, there are clear signs of sustained momentum in India's economic growth. Credit growth has been particularly strong, rising 19.1% year-on-year in September. Lending to industry grew by 19.5%, while credit growth in the services sector stood at 28.3%, indicating robust economic activity ahead. There are also signs of a pickup in industrial capital expenditure (capex). Meanwhile, the weakening of the global AI trade is another factor influencing market dynamics.

He said the shift in foreign portfolio investor (FPI) sentiment helped the Nifty reclaim the 23,000 mark.

"Even while selling in largecap financials, FIIs have been systematically accumulating stocks in pharmaceuticals and healthcare, along with select digital platform companies," Vijayakumar added.

3.) Rupee posts best monthly gain in 8 months

The Indian rupee strengthened against the US dollar on Friday, registering its best monthly gain since February, as Reserve Bank of India (RBI) measures to curb dollar demand and support the domestic currency helped ease pressure. However, elevated crude oil prices and persistent foreign portfolio outflows continued to weigh on the rupee.

The rupee closed at 94.95 against the US dollar, compared with 95.26 in the previous session. It gained around 1% during October, marking its strongest monthly performance since February, when progress in US-India trade negotiations had boosted sentiment and triggered a rally in the currency before renewed tensions in the Middle East reversed the trend.

Analysts see immediate resistance for the USD/INR pair at 95.00, followed by the 95.30-95.40 range. A sustained move above these levels could signal a revival in dollar strength.

On the downside, 94.90 is the immediate support level. A break below this mark could drag the pair towards 94.40-94.50.

4.) Broader market weakness

Nifty Smallcap and Midcap indices fell up to 2% on Friday. Sudeep Shah of SBI Securities said that, for the second consecutive month, the broader market indices, Nifty Midcap 100 and Nifty Smallcap 100, ended in negative territory. However, both indices witnessed a meaningful pullback from lower levels during the last week and formed bearish candles with long lower shadows, indicating buying interest emerging at lower levels despite prevailing weakness.

Currently, both indices continue to trade below their key short-term and long-term moving averages, which remain in a downward trajectory, suggesting that the broader trend is still corrective in nature.

Going ahead, Nifty Midcap 100 is expected to find immediate support in the 56,500-56,400 zone. On the upside, the 20-day EMA region of 58,200-58,300 is likely to act as a crucial resistance zone. A decisive breakout above this hurdle could pave the way for a further advance towards the 59,300 level.

Similarly, for Nifty Smallcap 100, immediate support is placed in the 18,100-18,000 zone. On the upside, the 20-day EMA zone of 18,800-18,850 is expected to act as a key resistance area. A sustained move above this barrier may strengthen bullish momentum and trigger a further rally towards the 19,250 level in the near term.

Technical setup

The recent price action suggests that selling pressure has eased considerably, with Nifty showing signs of establishing a base near an important support zone. The improving price structure is also evident on the lower time frame. Nifty has reclaimed its 20-day EMA, which has now started edging higher. Meanwhile, the downward slopes of the 50-day and 100-day EMAs have flattened considerably, indicating a gradual improvement in the underlying trend.

Adding to the positive momentum, the daily RSI has moved above the 50 mark and continues to trend higher. The convergence of these technical developments raises an important question: Is Nifty gearing up for a more meaningful recovery?

“The improving technical setup strengthens our conviction that the benchmark index could extend its ongoing pullback rally over the next couple of trading sessions. From a trading perspective, the 22,800–22,750 zone will serve as an important support area, and holding above this band will be crucial to sustaining the recovery,” Sudeep Shah said. “On the upside, the 50-day EMA, placed in the 23,150–23,200 zone, is likely to act as the immediate hurdle. A decisive breakout above this resistance could change the near-term technical landscape and open up the next leg of recovery towards 23,500,” he added..