Sensex, Nifty trade lower as pre-Diwali explosive rally cools down. Why analysts are bullish

The Indian stock market traded flat on Monday, recovering early morning losses, after snapping a six-day winning streak during the Muhurat Trading session on Sunday, as investors may have resorted to profit-booking after the explosive rally on Dalal Street prior to Diwali.

At 11.44 AM, Sensex rose over 650 points from the day's low of 80,519 while Nifty 50 fell nearly 10 points to trade below the 25,000 level. Broader markets also slipped into the red, with Nifty Midcap 100 and Nifty Smallcap 100 indices falling up to 0.2%.

HCL Tech and Infosys shares fell around 2%, while Power Grid, Bharti Airtel, TCS, UltraTech Cement and Tata Steel shares fell more than 1% each to lead losses on Sensex. Bucking the trend, SBI shares jumped more than 2% while HDFC Bank and ICICI Bank shares gained around 1% each.

Among the sectors, Nifty IT slipped more than 1% to lead losses, while Nifty Pharma jumped around 2% to lead gains. The market breadth was slightly negative, with NSE seeing 1,163 advances against 1,783 declines, while 119 stocks remained unchanged.

Also Read | Sensex, Nifty end Muhurat Trading session in red for first time in 9 years. Are the bulls losing steam?

Why are analysts still bullish?

With last week’s spectacular fireworks which saw the Nifty boom by 8.6%, the market sentiments have turned for the better, said V K Vijayakumar, Chief Investment Strategist, Geojit Investments. He noted that a rare convergence of positive news for India - FIIs turning aggressive buyers, fair valuations, winding down of AI trade, dip in crude price, decline in US bond yields and steadily improving corporate earnings as reflected in Q2 numbers- triggered the rally. When the situation turns favourable, the market needs only a trigger to rally. This trigger was provided by the Democrat’s victory in the US elections, which, in turn, caused fears of deceleration in AI spending and sharp correction in AI stocks, the analyst said.

“The FII buying in India is likely to sustain paving the way for further rally in large-caps. It is important to understand that FII allocations track index weights during major market shifts,” according to Vijayakumar.

Technical view on Nifty

Nifty’s mean reversion possibilities have risen, said Anand James, Chief Market Strategist, Geojit Investments. Yet, momentum can surprise, according to the analyst.

“We will keep the 24,860-24,775 as the downside marker, as long as above which, upside attempts may be expected, eying 25,400-25,700, February’s congestion band. Alternatively, inability to float above 24,775 could call for 24,400,” the technical analyst explained.

Also Read | Uday Kotak says $700 bn outstanding FII payments will boost market, sees AI worries driving flows to India

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