Nifty bulls regain momentum, but can bears strike back? 5 factors to decide D-Street’s fate next week

Indian equities staged a sharp rebound on Friday, October 9, bringing an end to the Nifty 50 and Sensex’s eight-week losing streak, with buying across information technology (IT), FMCG, auto and financial stocks lifting benchmark indices.

The Nifty 50 gained 288.65 points, or 1.30%, to close at 22,520.45, while the Sensex advanced 879.09 points, or 1.23%, to settle at 72,472.33.

However, the rebound comes against a challenging macroeconomic backdrop, with crude oil prices above $100 a barrel, sustained foreign investor outflows, a weaker rupee and tighter monetary policy continuing to weigh on sentiment. With domestic and US inflation data, global bond yields and more corporate earnings in focus, investors will assess whether Friday’s recovery can extend into the coming week.


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Can Nifty bulls sustain the recovery?

Analysts remain cautious about the sustainability of the rebound, citing elevated crude prices, foreign investor selling and global macroeconomic uncertainty as key risks. While domestic institutional buying has cushioned the impact of overseas outflows and IT stocks have led Friday’s recovery, the next move will depend on inflation data, global bond yields, oil prices and the September-quarter earnings outlook.

Here are the 5 factors that could decide D-Street’s fate next week:

1. Crude oil prices and geopolitical tensions

Crude oil prices remain a key macroeconomic concern for Indian equities, with Brent crude trading above the $100-a-barrel mark and West Texas Intermediate (WTI) above $90. Uncertainty surrounding Iran, the Strait of Hormuz and regional energy infrastructure continues to raise concerns over potential supply disruptions, with implications for inflation, the import bill and the rupee.

"A renewed rise in crude could intensify inflationary pressure, weaken the rupee further and weigh on sectors sensitive to fuel and input costs," said Ponmudi R, CEO of Enrich Money. He noted that a sustained decline in prices would offer meaningful relief to Indian equities by easing concerns over inflation and the country's import bill.

Ponmudi added that diplomatic efforts had offered some hope of de-escalation, although the risk of further interruptions to energy shipments remained.

Hariselvan Radhakrishnan, CEO of HST Wealth, also flagged elevated oil prices as a risk to the market outlook. He said Brent crude had settled above the $100 mark after trading in a range of roughly $102.50-$105, adding that a sustained decline below $100 would be needed to provide meaningful macroeconomic relief.

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2. US inflation, bond yields and the rupee

US inflation and retail-sales data will be important triggers for global markets next week, as stronger readings could keep Treasury yields and the dollar elevated. In India, September consumer price inflation (CPI) and wholesale price inflation (WPI) data, analysts said, will offer cues on domestic price pressures and the potential implications for monetary policy.

A stronger-than-expected CPI reading, Hariselvan said, could revive concerns over further Reserve Bank of India (RBI) tightening, putting rate-sensitive sectors such as banking, automobiles and real estate under pressure while raising the risk of a broader drag on consumer demand. A softer reading could ease concerns over the eventual peak in interest rates, although relief may prove short-lived if crude prices remain elevated. WPI inflation will provide further indications of how energy and logistics costs are filtering through to producer prices.

"Global bond yields will remain central to the direction of foreign flows," Ponmudi said. He noted that the US 10-year Treasury yield had eased from its recent peak near 5.36% to around 5.24%, providing some respite for emerging-market assets, although yields remained elevated.

"Any renewed rise in US yields could strengthen the dollar, increase pressure on the rupee and dampen risk appetite, particularly in rate-sensitive and higher-valued stocks," he said.

Hariselvan, meanwhile, said US inflation and retail-sales data would influence the direction of Treasury yields and the dollar. "Stronger-than-expected readings could reinforce expectations of further Federal Reserve tightening, sustaining pressure on emerging-market currencies and foreign portfolio flows," he said. Conversely, softer inflation or signs of moderating consumer demand could pull yields lower and provide Indian equities with a firmer foundation for recovery.

The rupee, trading near the Rs 97-per-dollar region, remains vulnerable to high crude prices, elevated US yields and sustained foreign portfolio outflows, according to Ponmudi. He added that a more durable recovery in the currency would likely require greater stability in oil prices and global yields, alongside an improvement in foreign investor flows.

The RBI’s policy stance will also remain in focus. Ponmudi noted that the central bank’s October 7 decision to raise the repo rate by 25 basis points to 5.50% and shift its stance from neutral to calibrated tightening marked its first rate increase in nearly four years.

The move reflected heightened concerns over inflation risks from elevated energy and commodity prices amid global uncertainty. Investors are likely to assess the implications for future policy decisions, borrowing costs and liquidity, with higher interest rates potentially weighing on credit-sensitive sectors and corporate financing conditions.

3. FII flows versus domestic institutional buying

Foreign investor selling remains a major overhang for the market, although domestic institutional investors have continued to absorb much of the selling pressure. FIIs recorded net outflows of approximately Rs 39,779 crore in October so far, while DIIs bought around Rs 40,355 crore over the same period, broadly offsetting the foreign selling.

Hariselvan said domestic institutional investors had provided a crucial counterweight to foreign selling, absorbing nearly the entire Rs 30,000-crore weekly outflow from foreign institutional investors.

The ability of domestic institutions to sustain this support, alongside any improvement in overseas investor flows, will remain important for the market’s direction. Ponmudi noted that elevated US bond yields could continue to limit overseas allocations to Indian equities, while a renewed rise in yields could strengthen the dollar and put further pressure on the rupee.

4. IT earnings and sectoral momentum

IT stocks led Friday’s recovery after TCS reported its September-quarter results, helping lift the broader indices. The focus now shifts to HCL Technologies, Wipro and Tech Mahindra, whose results and management commentary could determine whether the sector’s rebound gains traction.

Ponmudi said corporate earnings would increasingly influence sector-level performance as the September-quarter results season gathers pace. Investors will look for evidence of earnings resilience, demand recovery and margin stability across sectors.

"Strong results and positive management commentary could encourage selective buying," Ponmudi said, adding that the sustainability of the recovery would depend on whether earnings strength could offset higher input costs, currency volatility and tighter monetary conditions.

Hariselvan said the IT sector’s recovery would depend on the performance of its peers and their outlook for the coming quarters. "Management commentary on U.S. discretionary spending, deal conversions and margins will be key," he said.

He also flagged the potential implications of the PERM suspension for Indian IT companies. While the restriction does not affect existing H-1B employment, a prolonged freeze could increase localisation and employee-retention costs, he said.

5. Technical view

The Nifty 50 staged a sharp recovery on Friday, ending its eight-week losing streak. However, the broader technical structure remains vulnerable as the index continues to trade below its key moving averages, warranting caution against interpreting the rebound as a confirmed trend reversal.

The immediate resistance zone for the Nifty 50, according to Ponmudi, is placed around 22,600, followed by 22,800. A sustained move above 22,800 could strengthen the recovery and open the way towards 23,000. The index would need to reclaim and sustain above 23,000 to signal a more meaningful improvement in its short-term technical structure.

On the downside, Ponmudi identified 22,400 as the immediate support zone, followed by 22,200 and the psychological 22,000 mark. A break below 22,200 could revive selling pressure and expose the index to lower levels.

He noted that momentum indicators had improved from oversold territory following Friday’s rebound. However, with the broader trend still below key moving averages, the near-term outlook remains cautious, with the 22,600–22,800 zone acting as the first important hurdle.

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