Pulse of the Street: Dalal Street shines before Diwali. Can the rally last?
Indian equities headed into Diwali with a second straight weekly gain, powered by cheaper crude amid rising hopes of an end to the Iran war following US President Donald Trump's midterm election setback, and renewed foreign buying, even as a sell-off in technology stocks battered several overseas markets.
The Nifty and Sensex rose nearly 9% each during the week, marking their strongest weekly gains since February 2021, when optimism over a growth-oriented Union Budget had sparked a rally of nearly 10%. On Friday, the Nifty rose 2% to close at 25,030.35, while the Sensex advanced 2.2% to 81,028.
The strong market momentum helped the index break above the 24,774.3 resistance level, not tested since 3 August. The current momentum could propel the market towards 25,178.65, the level at which it was trading before the West Asia war began February-end, said an analyst at Aditya Birla Money.
Consumer durables, realty and financial services led the weekly rally as investors favoured businesses tied to domestic demand.
India’s limited exposure to the global artificial intelligence (AI) trade helped it buck the sell-off elsewhere, said Kranthi Bathini, director of research at WealthMills Securities.
Corrections in AI, semiconductor and data-centre stocks weighed on overseas markets, while falling oil prices improved India’s appeal, he added.
The rebound has raised hopes that Indian equities are regaining their footing after a difficult stretch. But analysts remain divided on whether it marks a durable recovery or reflects expectations of easing geopolitical tensions.
Oil relief, foreign buying
Brent crude's retreat below $100 a barrel on expectations of a de-escalation in the US-Iran conflict offered relief to investors worried about India’s import bill, inflation and corporate margins.
Anil Rego, founder and chief executive officer (CEO) of Right Horizons, attributed the rally to cheaper oil, renewed foreign investor buying and expectations of easing geopolitical tensions.
Oil prices retreated after Trump's Republican Party lost its majorities in both chambers of Congress to the Democrats in the 3 November midterm elections, raising hopes that the outcome would increase pressure on the US president to end the Iran war.
Foreign portfolio investors (FPIs) bought a net ₹22,693 crore of Indian equities during the week, including primary-market investments. Domestic institutional investors, meanwhile, sold a net ₹18,227 crore, including a record single-day outflow of ₹10,444.5 crore on 4 November.
Bathini said domestic institutions have been selling to raise cash after investing steadily over the past few quarters.
Abhishek Mishra, founding partner at SKG, offered a more cautious assessment. “This is a relief rally that has not yet become a recovery,” he said, arguing that much of the advance rested on hopes of a peace agreement rather than a lasting resolution of the risks troubling investors.
For the rally to become sustainable, Brent would need to remain below roughly $90–95 a barrel, foreign buying must continue for several weeks and earnings expectations must improve, he added.
Consumer stocks lead
All sectoral indices ended the week higher. BSE Consumer Durables led with a nearly 11% gain, while Realty and Financial Services rose 10% each. Auto gained 9.2%, while Oil & Gas, and Energy advanced 9% each.
Bathini favoured domestically-oriented businesses, including banks, financial services companies, consumer firms and defence stocks. He also saw opportunities in the information technology and power sectors over the longer term.
The gains contrasted sharply with losses in several Asian markets. Taiwan’s Taiex fell 12.2%, South Korea’s Kospi lost 11.7% and Japan’s Nikkei 225 declined 9.3% during the week. The US S&P 500 fell 3%, and Brazil’s Ibovespa slipped 1%.
Other markets advanced: Hong Kong’s Hang Seng gained 5.1%, China’s CSI 300 rose 1.7% and France’s CAC 40 climbed 1.2%.
India’s outperformance, however, does not insulate it from renewed external shocks. Rego said stable oil prices, a steadier rupee and improving earnings would be essential to retaining foreign interest. Renewed West Asia tensions, crude above $100 or higher US bond yields could weaken that appetite.
“We would therefore not assume that the recent return of FPI buying automatically signals a sustained inflow cycle,” he added.
Mishra warned that some foreign purchases could be short-term bets. Continued domestic selling could leave equities with less support if overseas buying slowed.
Beyond the festive hour
The rally sets an optimistic backdrop for Muhurat trading, the special Diwali session marking the start of the new Samvat year. History, however, suggests that festive gains often fade quickly.
A Mint analysis of 29 Muhurat sessions between 1997 and 2025 showed that the Sensex rose on 22 occasions, or 76% of the total. In the following trading session, it fell 20 times, or 69% of the time.
Rego attributed this pattern to positive sentiment and relatively light trading during Muhurat, followed by profit-booking when normal trading resumed.
“Muhurat trading is symbolic; the direction of the market over the following months will be determined by earnings, valuations, liquidity and macroeconomic conditions,” he said.
Both Rego and Mishra favoured staggered investments after the sharp rebound. For investors entering the new Samvat, the bigger test will come after the festive session: whether cheaper oil, foreign inflows and stronger earnings can turn a swift rally into a lasting recovery.