SMAR Daily Industry News

Nifty, Sensex Rally: 4 Key Factors for Monday's Market

The Indian stock market showed a mixed performance on Friday, with major indices posting gains while broader segments faced selling pressure. The Sensex rose by 308 points to close near 74,460, while the Nifty 50 advanced 116 points to settle at 23,053. In contrast, the Nifty Midcap 100 and Nifty Smallcap 250 indices declined by up to 2%, indicating that the recent recovery has not yet been evenly distributed across all market segments. As investors look towards Monday, several critical factors will likely dictate the direction of the market, ranging from global geopolitical tensions to domestic economic indicators and technical setups.

Oil prices have emerged as a significant variable for market sentiment. Crude oil climbed 14% in October, reaching its highest levels in six months due to concerns over a potential escalation in the Iran war following the US midterm elections. A Reuters report noted that oil markets could experience further volatility in the coming weeks amid Israel's recent elections and the US midterm elections scheduled for November 3. Saxo Bank expects crude prices to remain in a higher range of $70 to $90 per barrel even after the conflict ends, compared to the pre-war range of $60 to $70. Daan Struyven, co-head of global commodities research at Goldman Sachs, highlighted that recent attacks have demonstrated how shipping disruptions can spread and intensify. Goldman Sachs estimates that oil prices could surge to $120 a barrel if attacks on vessels in the Middle East intensify, although prices could decline towards $80 a barrel if exports return to normal.

Foreign portfolio investor (FPI) activity has shown a notable shift, providing support to the Indian equity market. During the last four trading days ending October 30, FPIs were net buyers in three sessions in the cash market, accumulating Rs 6,305 crore and snapping a 10-week selling streak. This buying activity in three of the five trading sessions contributed to a sharp market recovery. VK Vijayakumar, chief investment strategist at Geojit Investments Ltd, cited several factors supporting the positive outlook for Indian equities, including the US Federal Reserve's decision to hold interest rates, which is favorable for global equity markets. He also noted that valuations in the Indian market, particularly among largecap stocks, have become attractive. Vijayakumar added that FPIs have been systematically accumulating stocks in pharmaceuticals, healthcare, and select digital platform companies, even while selling in largecap financials.

The Indian rupee also posted a significant gain, registering its best monthly performance since February. The currency strengthened against the US dollar on Friday, closing at 94.95 compared to 95.26 in the previous session. This represents a gain of around 1% during October, driven by Reserve Bank of India (RBI) measures to curb dollar demand and support the domestic currency. However, elevated crude oil prices and persistent foreign portfolio outflows continue to weigh on the rupee. Analysts identify immediate resistance for the USD/INR pair at 95.00, followed by the 95.30-95.40 range, while 94.90 serves as the immediate support level. A break below this support could drag the pair towards 94.40-94.50, whereas a sustained move above resistance could signal a revival in dollar strength.

Despite the gains in major indices, broader market weakness persists. The Nifty Smallcap and Midcap indices fell up to 2% on Friday, marking the second consecutive month that the Nifty Midcap 100 and Nifty Smallcap 100 ended in negative territory. Sudeep Shah of SBI Securities observed that while these indices witnessed a meaningful pullback from lower levels during the last week, they formed bearish candles with long lower shadows, indicating emerging buying interest. Both indices continue to trade below their key short-term and long-term moving averages, which remain in a downward trajectory, suggesting the broader trend is still corrective. For the Nifty Midcap 100, immediate support is expected in the 56,500-56,400 zone, with the 20-day EMA region of 58,200-58,300 acting as crucial resistance. Similarly, the Nifty Smallcap 100 has immediate support in the 18,100-18,000 zone, with the 20-day EMA zone of 18,800-18,850 serving as a key resistance area.

Technical indicators suggest that selling pressure has eased considerably, with the Nifty showing signs of establishing a base near an important support zone. The Nifty has reclaimed its 20-day EMA, which has started edging higher, while the downward slopes of the 50-day and 100-day EMAs have flattened considerably, indicating a gradual improvement in the underlying trend. The daily RSI has moved above the 50 mark and continues to trend higher. These technical developments raise the question of whether the Nifty is gearing up for a more meaningful recovery, as the improving price structure on lower time frames supports the potential for further upside momentum.

For investors, the coming week will be a test of whether the recent recovery in largecap stocks can extend to the broader market. The interplay between volatile oil prices, shifting FII sentiment, and the strength of the rupee will be critical. While the technical setup for the Nifty appears to be improving, the persistent weakness in midcap and smallcap indices suggests that caution is still warranted. Watch for any decisive breakouts in the midcap and smallcap indices above their respective resistance levels, as this could signal a broader-based rally. Conversely, continued failure to hold support levels in these segments may indicate that the market remains in a corrective phase, with gains limited to select largecap sectors.

Why it matters

Understanding the divergence between largecap strength and broader market weakness helps investors navigate sector-specific opportunities and risks in the current volatile environment.

FAQ

What was the performance of the Sensex and Nifty on Friday?
The Sensex rose 308 points to close near 74,460, while the Nifty 50 advanced 116 points to settle at 23,053.

How did FPI activity change in the last four trading days?
FPIs were net buyers in three sessions, accumulating Rs 6,305 crore and snapping a 10-week selling streak.

What is the current support and resistance for the Nifty Midcap 100?
Immediate support is in the 56,500-56,400 zone, and the 20-day EMA region of 58,200-58,300 acts as crucial resistance.

What is the outlook for oil prices according to Saxo Bank?
Saxo Bank expects crude prices to remain in a higher range of $70 to $90 a barrel even after the conflict ends.

Source: Economic Times Markets. See the original source for full details.