Nifty touches a three-month high: Is Dalal Street’s Diwali-week rally a trend change or just festive relief?

Dalal Street’s Diwali-week surge was driven less by festive cheer and more by a sudden easing of the market’s biggest macroeconomic concerns. A sharp correction in crude oil prices, a return of foreign institutional investor (FII) buying and firm global cues have improved the outlook for Indian equities, market experts said.

“Indian equities are expected to maintain a positive trajectory due to a sharp correction in crude oil prices, resumption of FII buying and firm global cues,” said Siddhartha Khemka, Head of Research – Wealth Management at Motilal Oswal Financial Services.

“NSE cash-market turnover jumped 30% from the previous session, signalling broader and stronger participation in the rally,” said Nandish Shah, Deputy Vice-President at HDFC Securities.

The immediate trigger was a sharp fall in crude oil prices. Brent crude slipped to a two-month low after the US midterm election outcome raised expectations of de-escalation in the West Asia conflict, easing inflation and external-sector concerns for oil-importing India.

However, market analysts are assessing whether the rally represents a temporary macroeconomic relief trade or the beginning of a more sustained recovery.

India’s investment case has been weighed down by a weak rupee, high oil prices and persistent FII outflows. Lower crude prices could alter that equation by reducing the country's dollar import requirements, supporting the rupee and improving the inflation-growth outlook.

Over the four trading sessions into November, foreign institutional investors bought shares worth Rs 20,834 crore, a sharp contrast to the record outflows seen through September and October.

Also read: FIIs stage biggest single-day buying in over a year, net purchase Rs 15,000 crore on November 5

The rupee strengthened for a fifth consecutive session to 94.47 against the dollar, while benchmark bond yields fell by as much as 12 basis points to 7.07%.

Samir Arora, founder of Helios Capital, told Moneycontrol's *The Wealth Formula with N Mahalakshmi* that India's “negative halo” was beginning to fade. He argued that the market had actually been improving since April, but weakness in banks, IT and some large consumer companies had masked the broader recovery.

Arora expects rupee-denominated earnings growth to improve to around 14-15%. If currency depreciation moderates to about 3% a year, he estimates dollar-denominated earnings growth could reach roughly 11%. This is a key variable for foreign investors assessing India's relative appeal.

Nomura argues that FII selling may have peaked, supported by improving earnings, valuations below post-pandemic averages, softer global yields and the possibility of long-term capital gains (LTCG) tax relief. It expects the Nifty to move beyond its March 2027 target of 24,000.

Bernstein is more sceptical. It cut its December 2026 Nifty target to 25,000 from 26,000, arguing that an LTCG tax cut alone would not sustainably revive foreign flows. It also cautioned that India is not an automatic beneficiary of an unwinding of the AI trade.

The US midterm election outcome, a softer dollar, lower Treasury yields and hopes of de-escalation in West Asia have also improved global risk appetite. This, in turn, has benefited India, which is emerging as one of the more attractive destinations among emerging markets.

The day's sectoral performance suggested that investors were not merely covering short positions but were also rotating into sectors linked to domestic demand and the credit cycle.

Nifty Financial Services ex-Banks rose 4.24%, autos gained 4.14%, realty climbed 3.52%, private banks rose 3.44% and PSU banks added 3.13%. Bajaj Finance, Shriram Finance and Mahindra & Mahindra were among the leading Nifty gainers.

“Companies that were adversely impacted by the sharp surge in crude oil prices are now emerging as major beneficiaries of the recent correction in crude,” said Shrikant Chouhan, Head of Equity Research at Kotak Neo. “The automobile sector, which was among the biggest casualties when crude surged from $90 to $115 per barrel, witnessed a strong recovery.”

Autos also received an earnings boost. M&M's consolidated profit rose 25% year-on-year to Rs 4,588 crore, with its auto business reporting 55% profit growth. Samvardhana Motherson and Uno Minda also delivered strong results.

Metals also outperformed on expectations of a softer dollar and declining bond yields, with JSW Steel and Tata Steel among the notable gainers.

On the other hand, Apollo Hospitals, ONGC and Oil India were among the laggards. Chouhan attributed the selling to weaker-than-expected results in some cases and profit-booking in defensive sectors such as pharmaceuticals and select FMCG stocks after their recent outperformance.

Chouhan argued that the recovery was not merely driven by global macroeconomic factors but was also supported by decent Q2FY27 earnings. He said intermittent corrections of 2-3% should be used to accumulate quality stocks rather than viewed as a reversal of the broader trend.

“Technically, Nifty has decisively reclaimed its 200-day SMA at 23,997 for the first time since February 26, 2026, a meaningful bullish development that reinforces improving momentum,” Shah said.

HDFC Securities sees immediate resistance at 24,773, followed by 24,990, while support has shifted higher to 24,300.

Kotak Neo sees 24,000-24,100 as crucial support and 25,000 as the next major hurdle, with 26,000 as an important upside objective.

A sustained move above 24,773 could open the path towards 24,990 and then the psychologically important 25,000 mark. A fall below 24,300 would weaken the bullish structure, while a move back below the 200-day moving average near 24,000 would undermine the trend-reversal argument.

What could spoil the party

Three risks could quickly reverse the rally.

First, crude oil prices. If oil rebounds, inflation, current account and rupee concerns could return.

Second, sustained FII buying. Four sessions of purchases are a start, not yet a trend. The market needs a longer buying streak to establish that foreign money is returning in a sustained manner.

Third, earnings breadth. With BFSI, metals and oil and gas driving much of the profit growth, the rally needs earnings upgrades to spread to consumption, capital goods, realty and other domestic-facing sectors.

For now, Dalal Street appears to have concluded that the macroeconomic clouds are beginning to lift ahead of Muhurat Trading on November 8.

The Nifty 50 surged 576 points, or 2.40%, to 24,536.60, marking its biggest single-day gain since April 8 and its first close above 24,500 since August 7. The Sensex jumped 2,008.61 points, or 2.60%, to 79,310.01, extending its winning streak to six sessions.

The rally lifted the BSE's market capitalisation past Rs 500 lakh crore and added roughly Rs 8 lakh crore to investor wealth in a single session.

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