Pro Market Outlook | Can earnings season revive the market?

Earnings

Dear Reader,

In a week shortened by holidays, Indian markets made a notable recovery despite ongoing selling by foreign institutional investors (FIIs). The Nifty50 index rose by 0.97 percent, while broader indices surged by approximately 2 percent. This uptick can be attributed, in part, to a global revival in equity markets, as evidenced by positive trends across various sectors.

All sectoral indices ended the week on a high note, with the PSU Bank and metal indices each climbing over 4 percent. Private Bank stocks saw a solid increase of 2.5 percent, while the Defence Index also enjoyed a gain of 2.3 percent. Despite this, FIIs continued their selling streak for the twelfth consecutive week, offloading equities worth Rs 8,347.25 crore.

Across the ocean, US markets experienced a lift amid expectations of an impending rate cut, all while the government grapples with a shutdown. Historically, markets have tended to overlook such shutdowns; however, prolonged uncertainty could pose challenges ahead. The CME Group's FedWatch Tool indicates that traders are highly confident—nearly 84 percent—in a 25-basis-point cut at the upcoming Federal Reserve meeting in October, with additional cuts anticipated in December.

While global markets are experiencing a revival, with major US and European indices nearing their all-time highs, Indian markets still face hurdles in surpassing the peaks observed back in July 2025. Fortunately, the festive season has kicked off with enthusiasm, as automobile companies report encouraging sales figures. Nevertheless, to maintain this positive momentum, corporate earnings must exceed expectations.
Room for upside

After experiencing a decline for two consecutive weeks, the Nifty has managed to recover without dipping back to the 24,400 mark. The bears were unable to execute a breakdown, signalling a gradual strengthening in the stock market. Currently, we are witnessing a phase where individual sectors and stocks are slowly bottoming out and then making upward moves. However, the index itself is trailing behind many stocks, primarily due to a few that are facing challenges from macroeconomic and external factors.

The market swing has now risen back to 72, indicating that while we are not yet in an overbought situation, there is still potential for further market growth. Additionally, the average swing, which stands at 24, is considerably lower, suggesting that there's still room for the markets to rise.

A screenshot of a computer screen AI-generated content may be incorrect.

Source: web.strike.money

The red bar on the histogram signifies that there are more Puts than Calls in open interest. This trend often emerges following a rally, suggesting that we might be approaching a market peak. Interestingly, this shift occurs just after we observed a significant instance where Calls greatly outweighed Puts. Given this context, the data can be interpreted as indicative of a short covering phase currently taking place. This movement is likely to continue for some time.

A screenshot of a computer screen AI-generated content may be incorrect.

Source: web.strike.money

FIIs have once again increased their short positions, bringing the total contracts to 189,496. This marks the third occasion since April that the figures have approached the 190,000 mark. The current situation seems to reflect a similar intensity as before. Could this be indicative of a double bottom pattern, akin to the double top observed in last year’s data? It’s worth keeping an eye out for indications of short covering, as this could suggest an upward trend in the data.
A screenshot of a computer screen AI-generated content may be incorrect.

Source: web.strike.money

Sector Rotation

Nifty 50 – The Benchmark Index ended higher by +0.97 percent this week and closed at 24,894.25.
Weekly RRG:

Weakening Quadrant: The Nifty PSU Bank has seen a sharp turnaround in momentum and relative strength, indicating that outperformance will likely continue in the coming weeks. The Nifty Infrastructure has seen a minor uptick in momentum, but its relative strength continues to weaken this week.

Lagging Quadrant: The momentum has flattened out for Nifty Bank and Nifty Financial Services, but the relative strength continues to deteriorate. Nifty Private Bank and Nifty Realty are seeing some improvement in momentum, but the relative strength continues to deteriorate. Many other notable indices, such as Nifty Media, Nifty Oil & Gas, Nifty PSE, and Nifty Energy, have experienced a U-shaped recovery in momentum. If these indices continue to improve, then we can expect some outperformance (improvement in relative strength) in the coming weeks.

Improving Quadrant: The Nifty IT index has regained some momentum this week, and there is an improvement in relative strength as well. The Nifty FMCG index has seen a minor improvement in relative strength, but momentum has declined marginally. However, the pace of the decline in momentum has drastically reduced this week.

Leading Quadrant: Nifty Metal index continues to gain strong momentum as well as relative strength. The relative strength of the Nifty Auto index continues to improve, but the momentum has declined marginally for the second consecutive week. The declining trend in momentum for Nifty MNC has halted, and there is some improvement in relative strength. Nifty Pharma and Nifty Consumer Durable continue to exhibit deteriorating momentum and relative weakness. If this trend persists, these indices will likely enter the weakening quadrant, and we can expect some underperformance in the coming weeks.

Daily RRG:

Weakening Quadrant: Nifty MNC and Nifty Auto are in the weakening quadrant. Both indices are seeing some improvement in the momentum. If this trend continues, we can expect outperformance from these indices in the forthcoming trading sessions.

Lagging Quadrant: Nifty Pharma, Nifty Realty and Nifty IT are witnessing deteriorating momentum as well as relative strength. The Nifty consumer durable sector is seeing some improvement in momentum and is showing early signs of snapping its underperformance. The Nifty FMCG index has been gaining momentum, and over the past couple of trading sessions, its relative strength has also started to improve.

Improving Quadrant: Nifty Media is in the improving quadrant and is gaining momentum as well as relative strength.

Leading Quadrant: The Nifty Metal index has gained strong momentum and relative strength over the past few trading sessions. Nifty Bank, Nifty Private Bank, Nifty Oil & Gas and Nifty Financial Services are witnessing improvement in relative strength. However, the momentum for these indices is either flat or marginally rising. Nifty PSU Bank, Nifty PSE, and Nifty Energy have been declining in momentum over the past few trading sessions. However, in Friday's trading session, the decline in momentum halted, and there was an improvement in relative strength, which is a positive sign. Nifty infrastructure's decline in momentum has also halted, and there is a minor improvement in relative strength.

Stocks to watch

Among the stocks expected to perform better during the week are Muthoot Finance, AB Capital, Canara Bank, Indian Bank, LTF, Tata Steel, Jindal Steel, Bank of Baroda, PNB, JSW Steel, Hindalco and SBIN.

Cheers, Shishir Asthana