The domestic market began the week on a muted note amid concerns surrounding the potential fallout from the Delhi explosion. However, the weakness was short-lived, with equities rebounding sharply and closing at the day’s high on Monday. This trend continued across the week, supported by global cues as the U.S. Senate passed a bill to end the longest-ever federal shutdown. Importantly, an optimistic narrative by Trump expecting a trade deal with India and the Q2 results season nearing an end on a positive note, driven by better-than-expected performance by the broad market, boosts the rally, taking Nifty50 back to the recent peak of 26,000. Toward the week’s end, volatility resurfaced ahead of the Bihar election outcome and profit booking in U.S. AI and technology stocks due to elevated valuations. Nonetheless, we do not anticipate state election–related volatility to materially influence market direction either positive or negatively in the medium-term.
Last week the Indian markets were trading sideways as investors booked profits amid a lack of new domestic triggers and persistent FII outflows. FIIs got careful again after the early bird buying in October when Fed policy indicated a mixed view of further rate cuts this year. Sentiment was also dampened by the inconclusive outcome of the Trump–Xi meeting, which reduced expectations of a meaningful near-term trade agreement, affecting global risk appetite. At the same time, domestic data was positive, though PMI readings were mixed, while GST collections remained resilient despite rate rationalization—indicating sustained economic momentum and good broad corporate results optimising future earnings upgrades. The market expects earnings to witness a robust rebound in the third quarter, underpinned by multiple domestic tailwinds, though much will depend on the successful finalization of a trade deal with the U.S to sustain the bias in 2026.
Investors were eagerly awaiting the domestic inflation data, with expectations of continued moderation due to a steady decline in food prices. The September CPI has reduced to 1.44%, and October further cut to 0.25%, much below the consensus forecast of ~0.50%. It was the second consecutive month that inflation was below the 2-percentage point, which is the lower tolerance rate of RBI; long-term target is 4%. While such low inflation is typically not ideal for a fast-growing economy like India, the current decline—primarily due to softer food prices and GST rationalisation—should be viewed constructively. It provides the RBI with additional flexibility to consider further rate cuts to support economic growth. According to the latest RBI policy guidance, CPI is expected to rise sequentially during the January–March 2026 quarter
The global equities rallied on renewed risk appetite during the week, driven on the US shutdown resolution and growing expectations of Fed cuts amid signs of a cooling U.S. labour market. Emerging markets outperformed, reflecting the improvement in global sentiment. Indian indices mirrored this strength, with large and midcap stocks rallying with almost the same strength. However, global tech-based companies are in a corrective mode led by profit booking triggered by excessive valuations. SoftBank Group Corp. (a Japanese global conglomerate and technology-focused investment company) sold its entire stake of 32.1 million Nvidia shares in October 2025 for approximately $5.83 billion, amplifying the concerns on the valuation of AI firms. While India has limited direct exposure to the AI segment, the IT sector may face indirect pressure, as reflected in the sharp decline in the Nifty IT index toward the end of the week.
We continue to view a buy-on-dips approach as a sensible strategy for the Indian market. After the attempt in October, this week again the market attempted to cross the crucial level of 26,000 on the Nifty50 index. The tailwinds to move higher are becoming stronger as Q2 results have performed better than estimated, as far as the Mid and Small caps go, providing a 15-16% PAT YoY growth of the broad market. Much, however, will hinge on progress in the U.S.–India trade negotiations. Should a draft resolution be achieved by the end of November, based on Trump and Piyush Goyal narratives, the index is well-positioned to break above this crucial level, especially as investors anticipate stronger quarter-on-quarter corporate earnings in the third quarter.
First published in Mint