Indian stock markets staged a strong recovery ahead of Diwali, with benchmark indices rising for seven consecutive sessions and posting their biggest weekly gains in more than five years. The rally added nearly Rs 29.57 lakh crore to investor wealth, even as a sharp global technology sell-off rattled markets across Asia.The Sensex surged 1,718 points (2.17%) on Friday to close at 81,028.02, while the Nifty gained 494 points (2.01%) to settle at 25,030.35. Both benchmarks ended at their highest levels in more than eight months.The Sensex and Nifty gained 8.8 per cent and 8.6 per cent, respectively, during the week, marking their strongest weekly performance since February 2021, when optimism surrounding India’s Covid-19 vaccination campaign powered a market rally.The combined market capitalisation of BSE-listed companies rose to Rs 503.11 lakh crore on Friday, up nearly Rs 29.57 lakh crore from October 28, after which the seven-session rally began.Since October 28, the Sensex has climbed 7,782 points (10.62%), while the Nifty advanced 2,331.50 points (10.27%).The recovery also came against a difficult global backdrop. South Korea’s Kospi and Japan’s Nikkei fell around 6% each on Friday, while Taiwan’s market declined 4.5%, tracking a sharp overnight retreat on Wall Street amid concerns over returns from massive artificial intelligence investments.
What drove the rally?
Foreign investors return to Indian equitiesThe biggest support has come from foreign institutional investors (FIIs), who have turned buyers after largely staying away from Indian equities this year.Foreign investors bought shares worth around Rs 15,000 crore ($1.6 billion) on November 5 alone, their biggest single-day net purchase in nearly six years. The renewed inflows have provided a significant boost to large-cap stocks and helped improve market sentiment.The return of overseas money has been particularly important after months of sustained selling, which had weighed on Indian benchmarks and investor confidence.India’s limited exposure to AI-linked stocks helps it weather global routConcerns over massive spending on artificial intelligence and uncertainty about returns on these investments have triggered a sharp sell-off in global technology stocks.However, India’s relatively limited exposure to AI infrastructure-heavy companies has helped its benchmarks outperform several regional markets. South Korea’s Kospi and Japan’s Nikkei lost around 6% each on Friday, while Taiwan also witnessed a sharp decline.Indian IT stocks, meanwhile, showed relative resilience. The Nifty IT index gained 0.4% on Friday, taking its two-day advance to nearly 2.9%.Investors are increasingly distinguishing between companies funding the expensive AI infrastructure buildout and those positioned to benefit from enterprise adoption of the technology.Lower crude oil prices ease India’s macroeconomic concernsThe decline in crude prices has been another major positive for India, which imports most of its oil requirements. Brent crude fell below $100 per barrel during the week, easing concerns over the import bill, inflation and the current account deficit.It was trading around $96.99 per barrel on Friday, after recovering from its recent lows. Lower oil prices also improve the outlook for corporate margins in oil-sensitive sectors and provide some relief to the rupee.A stronger rupee and softer global yields improve investor appetiteThe rupee strengthened to around Rs 93.90 against the dollar on Friday afternoon, its strongest level since April 22. A firmer currency reduces imported inflation risks and can improve dollar-denominated returns for foreign investors.Easing US bond yields and a weaker dollar have also supported the broader shift towards emerging-market assets, including Indian equities.Banking heavyweights and Reliance lead the recoveryLarge-cap stocks have been at the centre of the rally, with banking and financial services companies attracting strong buying.The financial sector gained 10.4% this week, while private banks advanced 9.1%. HDFC Bank and ICICI Bank rose 13.8% and 12.4%, respectively, recording their strongest weekly gains in around six years.Reliance Industries also gained 13.3% during the week following upbeat quarterly results. These heavyweight stocks have played a significant role in lifting the benchmark indices.The rally also extended beyond large-cap stocks. All 16 major sectoral indices posted weekly gains, while mid-cap and small-cap indices rose 5.8% and 2.8%, respectively.US midterm election outcome improves global sentimentThe US midterm election outcome has added another element to improving global investor sentiment. Expectations of greater checks on President Donald Trump’s trade and geopolitical agenda have raised hopes of reduced policy uncertainty and potentially softer crude prices.Diwali sentiment adds to domestic optimismAt home, the rally has coincided with Dhanteras and the approach of Diwali, adding to the positive mood on Dalal Street. Markets are also preparing for the traditional Muhurat trading session on November 8, when investors make symbolic purchases to mark the new financial year for the trading community. While festive sentiment may have supported optimism, it does not fully explain the scale of the rally.Indian equities extended their gains on Thursday, right after the midterms, with the Sensex surging over 2,000 points (2.6%) and the Nifty rising 2.4%.Also read: Diwali fireworks continue as Sensex ends over 1,700 points to cross 81,000; top reasons for rally
Can the rally sustain?
After a sharp seven-session run, some profit booking or consolidation would not be unusual. Religare Broking’s Ajit Mishra said the Nifty’s ability to hold above 24,500 would be important to preserve momentum, with 25,200–25,500 as the next potential range. “The Nifty’s ability to sustain above 24,500 will be important to preserve the positive momentum and pave the way towards the 25,200–25,500 zone. We recommend maintaining a selective positive bias, focusing on fundamentally strong stocks demonstrating relative strength, while keeping position sizes in check amid potential volatility arising from global developments,” he said,” as quoted by ANI.The strength of the latest rally has been encouraging, with all major sectors advancing and mid- and small-cap stocks also participating. However, sustaining these gains will depend on whether foreign investors continue buying, crude prices remain under control and corporate earnings justify current valuations.“Lower crude oil prices, a stronger rupee and renewed foreign investment can support India’s macroeconomic stability. Additionally, improving earnings visibility and relatively more reasonable valuations are making Indian equities attractive again,” said market analyst Vipin Dixena, quoted by ANi.Global technology stocks, US policy developments and geopolitical risks will also remain important factors to watch.
