Nifty’s 8% surge this week is the best since January 2021. Are bulls here to stay?

Diwali appears to have arrived early for Dalal Street investors. The Nifty's 8% surge this week marks its biggest weekly gain since January 2021, when the 50-share index had rallied 9.5%. The sharp recovery has also added Rs 20 lakh crore to the combined market capitalisation of all BSE-listed companies, taking it to Rs 502 lakh crore.

The scale of the rebound is particularly striking given the turmoil across global markets. While investors on Wall Street and across Asia have been rushing to cut their exposure to technology and artificial intelligence-linked stocks, Indian equities have moved in the opposite direction. The benchmark index's previous best weekly gain following this week's rally came earlier this month in April, when it advanced 5.89%.

The divergence between Indian equities and global markets has become increasingly difficult to ignore.


The technology-heavy Nasdaq Composite plunged 5.52% to close at 24,315, its steepest single-day fall since April 2025, when US President Donald Trump announced sweeping global tariffs. The decline pushed the index more than 10% below the record high it had touched last month, placing it in correction territory.

The weakness spilled over into Asian markets on Friday. Japan's Nikkei plunged 7% shortly after the opening bell, while benchmark indices in South Korea and Taiwan fell more than 8%. Samsung and SK Hynix also crashed more than 10% each in morning trade. Markets across the region subsequently stabilised as bargain hunters stepped in.

What powered Nifty this week?

One of the biggest developments this week has been the sharp reversal in global technology stocks. The Democrats' victory in the US midterm elections has added to concerns that tighter regulatory scrutiny could slow data centre expansion and curb investments in artificial intelligence infrastructure.

These concerns triggered what has increasingly become an anti-AI trade. Around $2.5 trillion was wiped off US stock market value on Thursday as a sharp sell-off in technology stocks erased Wall Street's post-election rally.

Also read: Bloodbath in Nasdaq, Kospi and Nikkei but why Nifty is an oasis of peace amid global rout

The weakness was not restricted to the US. Asian markets, particularly those with significant exposure to the AI supply chain, also came under heavy selling pressure. Fears of regulatory intervention and a slowdown in AI infrastructure spending weighed on semiconductor and technology companies.

For India, however, this shift in global investor sentiment could prove beneficial. As investors reassess their exposure to expensive AI-linked markets, Indian equities are emerging as a relative alternative, particularly given their recent outperformance and improving earnings profile.

Foreign investor flows have provided another significant boost to the domestic market. After months of sustained selling that had pushed foreign ownership of Indian equities to historic lows, foreign institutional investors (FIIs) bought nearly Rs 15,000 crore worth of Indian equities on Thursday. This was their biggest single-day purchase in more than a year, according to provisional exchange data.

The turnaround appears to be more than a one-day development.

“Indian equity markets have gained steam this week, supported by a strong pick up in foreign portfolio interests. Net inflows worth $4 billion in the past ten sessions, as a stable rupee resulted in index gains in dollar terms,” Rao said.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said FIIs had purchased equities worth Rs 35,781 crore over the past five trading sessions.

Domestic institutional investors (DIIs), meanwhile, have continued to sell and book profits. However, Vijayakumar believes the market can remain resilient as long as foreign buying continues under the changed global market construct.

The shift is important because sustained foreign inflows could provide the domestic market with a fresh source of buying support after an extended period of outflows.

The rally has also been selective, with large-cap stocks attracting a greater share of buying interest than their smaller counterparts.

The divergence was visible on Thursday. While the Sensex advanced 2.6%, the Smallcap 100 index gained only 0.67%. This suggests that institutional money is currently favouring larger, more established companies rather than chasing the broader market.

“It is important to recognise the fact that this rally is driven by large-caps which had become attractively valued,” Vijayakumar said. He added that financials, technology and auto stocks still have further upside.

This rotation also helps explain why Indian benchmarks have held up relatively well despite weakness in global technology stocks. The current recovery is being supported by sectors and companies that had become attractively valued following the earlier correction.

Can the momentum sustain itself?

The immediate question for investors is whether the recent rebound marks the beginning of a more durable recovery or is simply a sharp relief rally after months of selling.

Global brokerage Nomura believes the backdrop for foreign flows into India is improving. Starting expectations remain low, while valuations across most sectors are below their post-pandemic averages. The Indian market has already gained 6% in dollar terms since October 8, outperforming most other markets.

The Nifty has also outperformed the AI-heavy indices of South Korea, Taiwan and the Nasdaq amid the correction in global AI stocks.

This relative performance could make Indian equities more attractive to international investors, particularly if corporate earnings remain resilient and concerns over stretched global technology valuations persist.

Nomura also highlighted a potential reduction in long-term capital gains tax for foreign institutional investors, falling global yields and expectations of continued support for the rupee through central bank intervention as factors that could improve investor sentiment.

At the heart of the brokerage's positive outlook are three developments: the intensity of FII selling is easing, corporate earnings are outperforming relatively subdued expectations and valuations have become more reasonable.

Together, these factors could improve the relative appeal of Indian equities and encourage foreign portfolio flows in the near term.

Kotak Institutional Equities believes strong second-quarter results should give investors greater confidence in the FY27-FY28 earnings outlook and prevailing valuations.

The numbers reported so far have been encouraging. Net profits of Nifty 50 companies that had announced their results rose 19% year-on-year, coming in 4% ahead of Kotak's estimates. Across the brokerage's coverage universe, net profits increased 18%, beating expectations by 3%.

The improvement was also visible in EBITDA, as well as in earnings adjusted for the oil, gas and consumable fuels sector.

This matters because a sustained market recovery will ultimately need earnings support rather than just a shift in global investor positioning. For now, stronger-than-expected corporate results, more reasonable valuations and the prospect of renewed foreign buying are providing Indian equities with a combination of tailwinds.

After months of pressure from foreign selling, the latest rally suggests that the investment case for Indian equities is beginning to regain traction. Whether it translates into a sustained uptrend will depend on how long these favourable trends last.

Disclaimer: This article has been written by Veer Sharma, who is not a SEBI-registered Research Analyst or an Investment Adviser. Veer Sharma and his/her ‘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