Banking, defence & derivatives: What’s driving India’s next market rally?

Markets are riding a wave of volatility — from geopolitical tensions to shifting interest rates, and now, the surge in derivative trading. Amid global chaos, where are India's retail traders headed? Which sectors are flashing momentum? And what’s the outlook for Nifty and Bank Nifty in the months to come? In this exclusive conversation, Dr Ravi Singh, Senior Vice President – Retail Research at Religare Broking, decodes the real pulse of India’s derivatives market.
Excerpts:

Q. Globally, we’re seeing multiple disruptions: wars, tariffs, and political tensions. But when it comes to derivatives, there’s a lot more at play. What are the most significant shifts you’re observing in India’s derivatives segment?
Dr Ravi Singh: India’s derivatives market has matured considerably. We’re witnessing a surge in liquidity and volatility, which is giving investors more opportunities to earn returns, often higher than those in the cash or equity markets. That’s why derivatives are becoming more attractive.


Additionally, SEBI’s regulatory reforms are offering better safeguards, making this space safer for retail investors. But what drives participation is the potential for high returns with minimal capital. Many retail traders aim to turn ₹10,000 into ₹1 lakh, that’s the kind of speculative mindset derivatives attract.

High liquidity, stable markets, and active buying and selling make the segment appealing right now.

Q. Which sectors are currently showing strength based on derivatives data?
Dr Singh: At present, banking and financials stand out. Most fund houses and investors are using derivatives to hedge their positions here. There’s significant Put Open Interest (OI) build-up at lower strike prices in Bank Nifty and stocks like ICICI Bank and HDFC Bank, which indicates strong support levels.

Another attractive segment is real estate, largely due to the lower interest rate environment. Additionally, defence stocks are showing strong OI growth and momentum. So, for the next 1–2 years, I see banking, realty, and defence as promising sectors.

Q. What’s your short-to-medium-term outlook for the Nifty and Bank Nifty?
Dr Singh: For Bank Nifty, I see strong support around 24,500–24,800 levels. In the next 6–12 months, I expect a target of 26,000. The open interest build-up at lower strikes is a strong indicator of this trend. Resistance may come around 25,500–25,600, but overall, I remain bullish.

Q. What key factors will drive the equity markets over the next 6–12 months?
Dr Singh: Despite global geopolitical tensions, Indian markets have shown resilience. Even in a worst-case global scenario, I expect Nifty to deliver 5–8% returns.

Domestic factors are favorable. FIIs and DIIs are buying again, especially in largecaps and midcaps. RBI’s rate cut stance has boosted liquidity in real estate, banking, and auto sectors. India’s GDP and macroeconomic indicators also support market growth.

On the flip side, the U.S. economy is under stress and geopolitical risks remain a concern, these global issues may create some market headwinds.

Q. Would you agree that domestic retail investors are largely holding up the Indian market?
Dr Singh: Absolutely. Over the past 6–8 months, we saw major corrections in large- and mid-cap stocks. Now, many of these are available at fundamentally attractive levels.

With government support and a favorable business environment, the next rally will likely be driven by domestic liquidity. DIIs have strong confidence and are actively buying quality largecaps, which are currently undervalued.

Q. How should active traders position themselves right now? Are there any clear breakouts or momentum sectors?
Dr Singh: Traders should focus on key support levels — for Nifty, that’s between 24,800–25,000. If it holds above these levels, I see the next target around 25,500.

From derivatives data, it’s clear there’s strong call-side OI at lower strikes, signaling support. So, buying on dips remains a good strategy.

In terms of sectors, again, banking and defence look promising based on both fundamentals and derivatives trends.

Q. Any stock-specific recommendations for new entrants in the derivatives market?
Dr Singh: Sure, here are a few:

1. MGL (Mahanagar Gas) – Currently around ₹1,440. Target: ₹1,550–1,580. Stop Loss: ₹1,420.
   
2. Mphasis – Buy around ₹2,690–2,700. Maintain a stop loss of ₹2,650.
   
3. Havells – Trading around ₹1,580–1,590. Target: ₹1,650–1,680. Stop Loss: ₹1,550. This one also shows strong open interest at lower strikes.
   

Q. And in your top-performing sectors — banking and defence — any stock picks for traders with moderate to high risk appetite?
Dr Singh: In defence, I like BEL, currently around ₹410–₹415. It has strong technical support and momentum.

In banking, Bank of Baroda and SBI both look promising, expect a 5–8% upside in the short term. Also, HDFC Bank is interesting due to IPO buzz. You can target ₹2,100, with a stop loss at ₹1,900.

Disclaimer: Recommendations, suggestions, views and opinions given by the experts/brokerages do not represent the views of Economic Times.