The positive undertone amid the choppiness comes on the back of a host of positive measures. The Reserve Bank of India cut the repo rate by 100 basis points to 5.5% between February and May. The goods and services tax rates were rationalized into two slabs of 5% and 18% on 22 September, bringing down the tax on a host of items. Analysts expect the earnings to pick up in the second half of the fiscal and India and the US to strike the bilateral trade deal next month.
The Nifty 50 hit a record high of 26,277.35 on 27 September last year but retreated amid high valuations, global uncertainty and trade wars. The index has recovered nearly 20% from April lows and is currently 1.9% away from that record.
Bulls have been struggling to hold above the 26,000 level. On Thursday, the Nifty slumped from a 52-week high of 26104.2 to close 0.8% lower at 25891.4. The bulls had a shot at the crucial level again on Friday, but were forced to retreat from the day’s high of 25944.15 to close 0.6% lower at 25,795.15.
Bears sold more Nifty calls than puts on Friday for the contracts expiring this Tuesday, underscoring the heavy resistance at the 26,000 mark and beyond. They sold just 76 puts against 100 calls on an outstanding basis, down from 90 puts for every 100 calls sold a day earlier. Traders sell more calls than puts when they believe the markets could remain steady or fall, allowing them to pocket the premium paid by call buyers.
For Tuesday’s monthly derivatives expiry, the 26,000 Nifty call has the second-highest open positions, at 237,928 lots (one lot equals 75 shares), after the 26,500 call, which has outstanding positions of 270,293 lots. This means an uptrend until Tuesday looks tough.
“The path to the record high won’t be that easy, but we should get there by the end of this calendar, courtesy of an earnings growth recovery, especially in large caps, thanks to the fiscal and monetary push by the government and the banking regulator this year, and a likely BTA (bilateral trade agreement) with the US hopefully before the year-end,” said Sriram Velayudhan, senior vice-president at IIFL Capital Services.
These positives, he said, would reverse foreign portfolio investor (FPI) outflows seen since September.
The aggregate net profit of 279 companies that have released results for the September quarter grew 3.95% year-on-year to ₹1.24 trillion but was down 6.16% sequentially. Earnings have been growing in single digits sequentially since the December quarter of 2023, but analysts expect this trend to change from the second half of FY26.
“Nifty earnings growth, which has been in mid single-digit for the past 6 quarters, should revive due to improvement in rural and urban demand, thanks to a fiscal and monetary stimulus by the Centre and RBI,” said Gaurav Dua, chief investment officer at Standard Chartered Securities. “Second, an additional rate cut by the US Fed could act as a cue for RBI to cut rates by another 25 bps, which is another positive. Lastly, the news flows on the Indo-US trade could be incrementally positive and provide a fillip to export-oriented sectors.”
Dua said if not by the calendar end, Nifty would rally to a new high by the fiscal year end.
Already, the intensity of selling by overseas investors has reduced sharply this month. FPI cash selling in October was down to ₹3363.26 crore against ₹27163 crore in September and ₹39,064 crore in August. This year alone, FPIs have sold shares worth ₹2 trillion, while domestic institutions led by mutual funds have purchased ₹6 trillion, causing the markets to rise 19% from a 10-month low of 21743.65 on 7 April to 25795.15 on Friday.
Kruti Shah, a quant analyst at Equirus, said short-term volatility on profit booking wasn’t “abnormal” after the “smart rally” since April. But she rules out a sharp downward move, saying markets had formed a base at around 25400-25500 with sights set on surpassing the previous record high of last September by the end of 2025.
According to Dua, Nifty was not expensive on an absolute basis, currently trading at 20.5-21 times one-year forward earnings against a 10-year average of 19-19.5x. He, however, cautioned that small-cap stocks were trading at a 25% premium to large-caps, which merited a selective approach to the broader markets.
