Diwali gains often last. Will this year’s Sensex rally hold?

The festivities are over, but Dalal Street has held on to its cheer. The BSE Sensex gained 0.73% in the week after Muhurat trading on 8 November, adding to its strongest pre-Diwali weekly rally in three decades.

The 8.78% surge before Muhurat was the biggest, according to a Mint analysis of Bloomberg data from 1997 to 2026, well above the previous high of 5.4% in 2002. After such a sharp rise, the question is how much further the market can go.

History offers some pointers. The Sensex rose in the week after Muhurat in 19 of the 29 years through 2025, or almost two-thirds of the time. But gains before the festival have not always lasted and analysts say festive sentiment alone cannot sustain this year’s rally.

Rajesh Singla, CEO and fund manager at Alpha AMC, attributed the pre-Muhurat surge to renewed foreign buying, falling crude prices and short covering as traders unwound bets on further declines.

“For it to last, foreign buying must continue in cash equities, crude must stay contained, and Q2 earnings must justify current valuations,” Singla said.

Gains, then reversals

The Sensex gained in the week before Muhurat in 19 of the 30 years analyzed and fell in the remaining 11. Advances ranged from just 0.03% in 2006 to 8.78% this year.

A positive lead-up, however, did not guarantee another week of gains. Of the 19 years with a positive pre-Muhurat week between 1997 and 2026, the Sensex extended its gains in the following week in 13, including this year. In the remaining six, it fell.

Some reversals were sharp. In 2010, the Sensex gained 4.86% before Muhurat but lost 4.04% afterwards. A year earlier, a 4.11% rise was followed by a 2.96% decline. In 2013, the index gave up much of its 2.69% advance with a 2.50% fall.

There were also years when buying continued. In 2001, the Sensex rose 3.29% before Muhurat and another 5.42% afterwards. In 2025, a 1.02% gain was followed by a 2.20% advance.

Puneet Singhania, director at Master Capital Services Ltd, said festive optimism and fresh investment activity can lift sentiment, but investors should not treat the pattern as a reliable seasonal trend.

“Diwali sentiment can provide a short-term psychological boost, but the direction of the market is ultimately determined by fundamentals,” Singhania said.

Singla urged caution about drawing conclusions from just 30 observations. Festive demand, quarterly results and fresh Samvat allocations can support buying, he said, but broader market conditions matter more.

One outsized rebound

The average post-Muhurat return looks stronger than the typical year’s gain partly because of one exceptional observation. Across the 30 years through 2026, the Sensex gained an average of 1.53% in the week after Muhurat, including this year’s 0.73% rise. That includes a 24.93% surge in 2008, following an 11.89% fall in the preceding week.

Excluding 2008, the average drops to 0.72%. The median return—the middle value when all observations are ranked—was 1.01% across the 30 years through 2026.

Nor did losses before the festival necessarily continue afterwards. In seven of the 11 years with a negative pre-Muhurat week, the index rebounded the following week.

What comes next

For this year’s rally, analysts want to see evidence that buying can last beyond a few strong sessions.

Singhania said consistent foreign inflows, improving earnings and participation from midcap and smallcap stocks would indicate greater confidence. Without fresh institutional buying or earnings improvement, a rally driven by short covering could fade.

Singla would watch whether foreign investors move from covering short positions in index futures to making steady cash-market purchases. Crude oil prices, the rupee and any reversal in the global rotation away from AI stocks would also influence the market, he said.

With this year’s pre-Muhurat gain far exceeding every other observation in the sample, past returns offer only limited guidance on what follows.

“A few weeks of flows and earnings will tell us more than one strong week,” Singla said.