Nifty bulls reclaim 25,000 mark as FIIs step up India buying: 5 factors that will determine D-Street's fate next week

Indian equities staged a sharp comeback last week, with the Sensex and Nifty surging nearly 9% each as aggressive foreign institutional investor (FII) buying, a sharp correction in crude oil prices and improving global sentiment lifted investor confidence.

The Nifty advanced in all five trading sessions, gaining 1,977 points, or 8.58%, to reclaim the psychologically important 25,000 mark and close at 25,030.35 on Friday, November 6. The Sensex climbed 6,568 points, or 8.82%, to settle at 81,028, marking one of the strongest weekly performances for the domestic market.

FIIs turned aggressive net buyers, purchasing nearly Rs 45,960 crore during the week and reversing October's selling trend. Banking and financial stocks emerged as key drivers of the recovery, while improving global risk appetite provided additional support.


However, the sharp rebound comes against an uncertain global backdrop. US technology and artificial intelligence-related stocks have faced renewed selling pressure amid concerns over elevated valuations, substantial data-centre investments and the time required to generate returns from AI spending.

Here are 5 factors likely to determine the direction of Dalal Street next week.

1. Global AI sell-off: Will India gain from the shift in global allocations?

The correction in global technology and AI-related stocks has emerged as an important factor influencing international capital flows. Concerns over stretched valuations, massive data-centre investments and the uncertain timeline for monetising AI-related spending have triggered selling across major technology markets, including the US, South Korea, Taiwan and Japan.

V K Vijayakumar, Chief Investment Strategist at Geojit Investments, said the sudden reversal in foreign investor positioning was partly triggered by the AI-related sell-off in the US and other technology-heavy markets.

He attributed the selling pressure to concerns surrounding data-centre spending in the US and the possibility of greater regulatory oversight of AI investments following the Democrats' gains in Congress. The prospect of regulatory safeguards around AI infrastructure spending has prompted global investors to reassess their exposure to technology-driven markets.

This shift has improved India's relative investment appeal, given its comparatively lower exposure to AI hardware and semiconductor-related stocks.

Hariselvan Radhakrishnan, Founder and CEO of HST Wealth, a SEBI-registered research analyst firm, said India's sectoral composition, with a greater representation of financials and consumption-oriented businesses, has helped it emerge as an alternative destination for global funds reducing exposure to expensive technology markets.

Vijayakumar also pointed to India's impressive earnings growth and attractive large-cap valuations as factors supporting its appeal among foreign investors.

The shift could encourage further foreign allocations towards Indian banks and large-cap domestic businesses. However, the extent to which this benefits the broader market will depend on whether buying extends beyond benchmark heavyweights.

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The relatively weak market breadth towards the end of last week indicates that the headline indices have recovered faster than the wider market, with large-cap stocks continuing to dominate the rally.

2. Crude oil prices and geopolitics: Will the decline sustain?

Crude oil prices will remain a critical determinant of the domestic market's near-term trajectory, given India's dependence on energy imports.

Brent crude closed near $98 a barrel after rebounding from its weekly low, while WTI crude retreated towards $90 after trading above $104-105 earlier. Both benchmarks recorded weekly declines of more than 12%, easing the immediate overhang from elevated energy prices.

The decline has eased concerns over India's import bill, inflation and corporate profitability. Lower energy prices could also support consumption through reduced transportation and input costs, while providing relief to oil-sensitive sectors.

However, the improvement remains closely linked to geopolitical developments and the possibility of de-escalation between the US and Iran. Diplomatic efforts continue, although the possibility of renewed military action remains a risk.

Hariselvan said the sustainability of the recent improvement in market sentiment would depend significantly on continued progress towards de-escalation.

A stable crude price could allow investors to shift their focus towards corporate earnings and domestic demand. However, renewed geopolitical tensions could reverse the recent correction and put pressure on sectors that have benefited from expectations of lower input costs.

Ponmudi R, CEO of Enrich Money, a SEBI-registered online trading and wealth technology firm, also highlighted the sharp decline in global oil benchmarks as an important factor supporting the market recovery.

A sustained moderation in crude prices would remain supportive of Indian equities. Any renewed escalation in geopolitical tensions or disruption to energy supplies, however, could quickly revive concerns over inflation and India's macroeconomic outlook.

3. FII flows versus DII positioning: Is foreign money driving the rally?

The sharp reversal in foreign institutional investor activity was among the biggest drivers of last week's market recovery.

After remaining persistent sellers during October, FIIs turned aggressive buyers, recording net purchases of approximately Rs 45,960 crore during the week. Domestic institutional investors (DIIs), meanwhile, registered net sales of around Rs 24,197 crore, marking a notable shift in institutional market leadership.

V K Vijayakumar said the sudden change in FII positioning, coupled with short covering, triggered a powerful rally in Indian equities.

He noted that foreign investors had turned major buyers in index heavyweights across financials, IT, automobiles and telecom stocks.

Hariselvan said the correction in global AI-related stocks, combined with improving earnings prospects and relatively attractive valuations among Indian large-cap companies, has strengthened India's investment appeal.

The resulting shift in global portfolio allocations has allowed Indian equities to attract capital even as several technology-heavy international markets witnessed selling pressure.

However, the sustainability of the rally will depend on whether foreign buying extends beyond short covering and tactical positioning adjustments. A sustained reversal in FII flows across a broader range of stocks would provide a stronger foundation for the recovery.

The latest institutional data also raises questions about the role of domestic investors.

DIIs had previously cushioned the impact of foreign selling. Their net selling during the latest week, however, suggests that market leadership has shifted towards foreign capital.

Any reversal in FII sentiment could therefore leave the market more vulnerable to volatility if domestic institutional support does not return.

4. US inflation, Treasury yields and India's CPI: What will investors track?

Global bond yields and inflation expectations will remain important determinants of emerging-market capital flows in the coming week.

The US 10-year Treasury yield, currently near 4.84%, remains elevated despite easing from its recent peak. This reflects concerns over persistent inflation and the strength of the US economy.

Hariselvan said stronger US employment growth and firmer wage trends have increased the significance of upcoming inflation readings.

If US inflation remains sticky, expectations of another Federal Reserve rate increase could strengthen the dollar and push bond yields higher, potentially testing the sustainability of recent FII inflows into Indian equities.

Conversely, softer inflation data, accompanied by stability in global equity markets, could improve risk appetite and encourage further allocations towards emerging markets.

On the domestic front, India's October consumer price index (CPI) inflation data, scheduled for November 12, will be closely watched for indications of the extent to which the earlier surge in crude oil prices has filtered through to retail inflation.

Inflation has edged higher in recent months amid elevated energy costs, making the latest reading important for assessing the domestic price trajectory.

Hariselvan said a contained inflation reading, viewed alongside the moderation in crude prices, could further strengthen market sentiment and improve the relative appeal of financials and consumption-oriented companies.

Investors will also track China's inflation and trade indicators for signals on global demand, particularly for metals and other cyclical commodities. These readings could offer clues on whether commodity demand can sustain recent gains in cyclical segments.

The combined impact of US inflation, India's CPI reading and Chinese economic indicators could influence global liquidity, currency movements and sectoral positioning.

5. Nifty technical outlook: Can the index sustain above 25,000?

After a sharp recovery, the Nifty 50 has reclaimed its major moving averages and closed above the psychologically important 25,000 mark at 25,030.35.

The index's ability to sustain above this level will be crucial in determining whether the rally has further room to run or whether markets enter a consolidation phase following the sharp advance.

Hariselvan said the index has reclaimed its major moving averages, although the vertical nature of the recovery increases the possibility of intermittent consolidation.

A sustained move above 25,150 would strengthen the bullish technical setup and provide further upside momentum.

On the downside, the immediate support zone is placed around 24,950-24,900. A failure to hold this region could extend consolidation towards the recent breakout area.

Ponmudi sees immediate resistance for the Nifty at 25,150-25,200, followed by the crucial 25,500 level. On the downside, 24,800 is the immediate support, followed by 24,600. Holding above these levels will be important to preserve the improving technical structure.

Disclosure: This article has been written by Kumar Gaurav, who is not a Sebi-registered Research Analyst or an Investment Adviser. Gaurav and their ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective Sebi-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here