Sensex, Nifty log biggest weekly gains since 2021 ahead of Diwali as crude prices fall

Indian equity markets are heading into the Diwali festivities on a strong footing after benchmark indices recorded their biggest weekly gains in more than five years, supported by falling crude oil prices, renewed foreign investor interest and hopes of an easing of geopolitical tensions in West Asia. The rally also came against the backdrop of a sharp technology-led sell-off across several international markets, highlighting the relative resilience of domestic equities.

The Nifty 50 and the BSE Sensex gained nearly 9% each during the week, marking their strongest weekly performances since February 2021, when optimism surrounding a growth-oriented Union Budget had triggered a rally of almost 10%. The gains extended the indices' winning streak to seven consecutive trading sessions.

On Friday, the Nifty advanced 2% to close at 25,030.35, while the Sensex climbed 2.2% to settle at 81,028. The Nifty's return above the psychologically significant 25,000 mark also represented a breakout above the 24,774.3 resistance level, which had not been tested since August 3.

The rally added nearly ₹28 lakh crore to the combined market capitalisation of BSE-listed companies during the week, reflecting the scale of the recovery. The rupee also strengthened to around 93.91 against the US dollar, while the yield on the benchmark 10-year government bond recorded a sharp weekly decline.

Cheaper crude and hopes of peace drive domestic rally

A major factor behind the recovery was the retreat in international crude oil prices. Brent crude fell below $100 a barrel amid expectations of a possible de-escalation in the conflict between the United States and Iran, offering relief to investors concerned about India's import bill, inflationary pressures and corporate profit margins.

Oil prices declined following the November 3 US midterm elections, in which the Democratic Party defeated President Donald Trump's Republican Party and took control of both chambers of Congress. The electoral setback fuelled expectations that political pressure on Trump could increase, potentially pushing his administration towards ending the Iran war.

The decline in crude prices was particularly significant for India, which depends heavily on imported energy. Lower oil prices can reduce the country's import expenditure, ease pressure on the rupee, contain inflation and improve the operating margins of businesses exposed to energy costs.

Anil Rego, founder and chief executive officer of Right Horizons, attributed the market rally to a combination of cheaper crude, renewed foreign investor buying and expectations of reduced geopolitical uncertainty.

An analyst at Aditya Birla Money said the Nifty's decisive move above the 24,774.3 resistance level could open the way for a further advance towards 25,178.65. That level was where the index had been trading before the West Asia war began towards the end of February.

Foreign investors return as domestic institutions book profits

Renewed foreign portfolio investor (FPI) participation provided another important source of support for Indian equities.

Foreign portfolio investors purchased a net ₹22,693 crore worth of Indian equities during the week, including investments through the primary market. Their return marked a shift in sentiment after a prolonged period of selling pressure.

Domestic institutional investors (DIIs), however, moved in the opposite direction, selling a net ₹18,227 crore worth of equities during the same period. Their selling included a record single-day outflow of ₹10,444.5 crore on November 4.

Kranthi Bathini, director of research at WealthMills Securities, said domestic institutions had been selling shares to raise cash after consistently investing in the market over the preceding quarters.

The broader market data also indicated a significant improvement in foreign investor participation. Separate exchange-based estimates put aggregate foreign institutional buying at nearly ₹45,960 crore during the week, against domestic institutional selling of approximately ₹24,197 crore.

However, market experts cautioned against interpreting the return of overseas investors as the beginning of a sustained buying cycle, particularly as foreign inflows could still be influenced by short-term global developments.

Domestic-focused sectors lead gains

The rally was broad-based, with all sectoral indices ending the week in positive territory. Consumer durables, real estate and financial services emerged as the leading performers, as investors gravitated towards businesses with greater exposure to domestic consumption and economic activity.

The BSE Consumer Durables index gained nearly 11% during the week, while the Realty and Financial Services indices advanced around 10% each.

The automobile sector rose 9.2%, while Oil and Gas and Energy indices registered gains of approximately 9% each.

Bathini favoured domestically oriented businesses, particularly banks, financial services companies, consumer-focused firms and defence stocks. He also identified opportunities in information technology and power companies over the longer term.

According to Bathini, India's relatively limited exposure to the global artificial intelligence investment trade helped domestic equities withstand the technology-led sell-off witnessed in several overseas markets.

Corrections in artificial intelligence, semiconductor and data-centre stocks had weighed on international indices, prompting investors to reassess valuations and the sustainability of spending on AI infrastructure. India's relatively lower exposure to these segments helped it attract investment at a time when global technology stocks were under pressure.

Analysts warn against treating rally as a sustained recovery

Despite the strong weekly performance, market participants remain divided over whether the latest advance represents a durable recovery or a temporary relief rally driven by expectations of easing geopolitical tensions.

Abhishek Mishra, founding partner at SKG, offered a cautious assessment of the market's performance, describing the advance as a relief rally rather than a confirmed recovery.

He argued that much of the recent buying was based on expectations of a possible peace agreement between the United States and Iran rather than a lasting resolution of the geopolitical and economic risks affecting global markets.

For the rally to become sustainable, Mishra said Brent crude would need to remain below approximately $90-95 a barrel, foreign investor buying would have to continue for several weeks, and corporate earnings expectations would need to improve.

Rego also highlighted the importance of stable crude prices, a steadier rupee and improving corporate earnings in retaining foreign investor interest.

He cautioned that renewed tensions in West Asia, a return of crude prices above $100 a barrel or an increase in US bond yields could weaken investor appetite for Indian equities.

"We would therefore not assume that the recent return of FPI buying automatically signals a sustained inflow cycle," he said.

Mishra also warned that some foreign purchases could represent short-term investment bets rather than a long-term commitment to Indian equities. Continued selling by domestic institutions could leave the market with relatively less support if overseas buying were to slow.

Indian markets outperform Asian and global peers

The performance of Indian equities stood in sharp contrast to the losses recorded across several major international markets during the week.

Technology-heavy Asian markets were among the worst affected by the global sell-off. Taiwan's Taiex declined 12.2%, South Korea's Kospi fell 11.7% and Japan's Nikkei 225 dropped 9.3%.

In the United States, the S&P 500 was down around 3% during the week, while Brazil's Ibovespa slipped 1%.

However, some international markets managed to register gains. Hong Kong's Hang Seng advanced 5.1%, China's CSI 300 rose 1.7% and France's CAC 40 gained 1.2%.

India's relative outperformance reflected the combined impact of falling oil prices, renewed foreign buying and its comparatively limited exposure to the AI infrastructure trade that had driven much of the recent global market rally.

Nasdaq rebounds as semiconductor stocks recover

Meanwhile, US technology stocks staged a partial recovery on Friday after suffering their steepest losses in several months during the previous trading session.

The Nasdaq Composite rose in early trading as semiconductor shares recovered from Thursday's sharp decline. The index had recorded its steepest single-day fall in 19 months on Thursday, entering correction territory and heading towards a fourth consecutive weekly decline.

The sell-off followed the Democrats' midterm election victory, including in several important data-centre states, raising concerns that a Democratic-controlled Congress could introduce tougher regulations on artificial intelligence and slow the expansion of data-centre infrastructure.

Investors had previously driven technology stocks to record highs on expectations of rapid growth in AI-related spending.

On Friday, several major technology companies recovered some of their losses. Nvidia climbed 5.6% after recording its worst trading session since January 2025, when the emergence of the low-cost Chinese AI model DeepSeek had unsettled global markets.

The broader semiconductor index advanced 4.6% after falling more than 12% in the previous session. Advanced Micro Devices, Intel and Micron Technology gained between 3% and 10.5%.

Tesla and SpaceX, both led by Elon Musk, also recovered, rising 5.5% and 6.3%, respectively, after suffering substantial losses over the preceding two sessions.

Data-centre operators IREN and Applied Digital, cloud computing companies CoreWeave and Nebius Group, and AI-linked utility and equipment suppliers such as GE Vernova and Constellation Energy also rebounded after Thursday's losses.

Strong US jobs data raises interest rate concerns

The recovery in technology shares came even as fresh US employment data raised concerns about the Federal Reserve's interest rate outlook.

Non-farm payrolls increased more than expected in October, while the unemployment rate declined to 4.1%, indicating continued resilience in the American labour market.

The stronger-than-anticipated employment figures raised expectations that the Federal Reserve could consider another interest rate increase as early as December. Traders increased the probability of a December rate hike to 78%, compared with 70% earlier.

Joe Saluzzi, co-head of equity trading at Themis Trading, said the strong employment numbers would ordinarily suggest that the Federal Reserve should adopt a more hawkish approach. However, he questioned whether the central bank would want to raise rates while financial markets were experiencing heightened volatility.

At 10.21 am Eastern Time on Friday, the Dow Jones Industrial Average was largely unchanged at 51,530.05 points. The S&P 500 had gained 1% to 7,426.29, while the Nasdaq Composite was up 1.73% at 24,736.2.

Six of the 11 major S&P 500 sector indices were trading higher, with information technology leading the gains. Consumer staples and healthcare stocks remained among the laggards.

The CBOE Volatility Index, Wall Street's widely watched fear gauge, eased slightly to 23.88 on Friday after recording its biggest single-day increase in approximately 19 months during the previous session.

Despite the recovery, the Nasdaq was heading towards its fourth consecutive weekly decline, while the S&P 500 was on course for its worst weekly performance since March 2025, when concerns over the Trump administration's tariff policies had unsettled global markets.

The previous day's increase in crude oil prices had also weighed on equities because of concerns about energy-driven inflation and the possibility of higher interest rates by central banks. Brent crude futures edged lower on Friday and were on course for a sharp weekly decline. The S&P 500 Energy index was also heading towards a weekly loss of more than 11%.

Among individual stocks, software company Atlassian fell 14.7% after reporting its first-quarter results, while vacation rental platform Airbnb gained 9.4% after raising its full-year 2026 revenue growth forecast.

Diwali trading begins against cautiously optimistic backdrop

The strong performance of Indian equities has provided an optimistic backdrop for Muhurat trading, the special stock market session conducted on Diwali to mark the beginning of the new Samvat year.

The rally has helped restore some investor confidence after a difficult period marked by geopolitical uncertainty, expensive crude oil and sustained foreign selling.

However, analysts believe the sustainability of the gains will depend on whether the recent improvement in global conditions translates into more stable oil prices, continued foreign investment and stronger corporate earnings.

While the latest rally has brought the Nifty and Sensex closer to their pre-war levels, the possibility of renewed geopolitical tensions and volatility in global technology stocks remains a risk.

Festive optimism may therefore provide support to sentiment in the near term, but investors will be watching developments in West Asia, crude oil prices, foreign fund flows and the Federal Reserve's policy outlook to determine whether the latest gains can develop into a longer-lasting market recovery.