Indian benchmark indices Sensex and Nifty ended the week on a positive note, rising by up to 0.5%. However, the broader market faced considerable selling pressure amid several concerns, including a sharp rise in crude oil prices above $117 per barrel.
The Sensex gained 308 points to close near 74,460 on Friday, while the Nifty 50 advanced 116 points to settle at 23,053. In contrast, the Nifty Midcap 100 and Nifty Smallcap 250 indices fell by up to 2%, reflecting weakness in the broader market.
Investors will closely monitor the following four factors for cues on the market's direction.
1. Rising crude oil prices
Crude oil prices increased by 14% in October, reaching their highest levels in six months. Concerns over a possible escalation of the Iran conflict following the US midterm elections have added to fears of supply disruptions.
According to a Reuters report, oil prices could remain volatile over the next couple of weeks, particularly amid developments following Israel's recent elections and the US midterm elections scheduled for November 3. A briefing by Denmark-based Saxo Bank indicated that crude prices could remain in the $70-$90 per barrel range even after the conflict ends, compared with the earlier range of $60-$70.
Fears of further disruptions to oil supplies have also raised the possibility of higher prices. Daan Struyven, co-head of global commodities research at Goldman Sachs, said recent attacks had demonstrated how disruptions to shipping routes could spread and become more serious.
Goldman Sachs estimates that crude prices could rise to $120 per barrel if attacks on vessels in the Middle East intensify. However, prices could fall towards $80 if exports return to normal.
2. Foreign investor activity
Foreign portfolio investors (FPIs) turned net buyers in the cash market during the last four trading days ending October 30. They invested Rs 6,305 crore, bringing an end to a 10-week selling streak. FPIs bought equities in three of the five trading sessions, helping the market recover.
VK Vijayakumar, chief investment strategist at Geojit Investments Ltd, said several factors were supporting the outlook for Indian equities. These include the US Federal Reserve's decision to keep interest rates unchanged and attractive valuations in the Indian market, particularly among large-cap stocks.
He also pointed to the continued strength of India's economic growth. Bank credit grew by 19.1% year-on-year in September, while lending to industry increased by 19.5%. Credit growth in the services sector was even stronger at 28.3%, indicating healthy economic activity.
There are also signs of increased spending on industrial capital expenditure (capex). At the same time, the weakening of global investments linked to artificial intelligence is influencing market trends.
Vijayakumar said the change in foreign investor sentiment had helped the Nifty recover and cross the 23,000 mark.
He added that even as foreign investors continued selling large-cap financial stocks, they were steadily buying shares in the pharmaceutical and healthcare sectors, along with selected digital platform companies.
3. Rupee records monthly gain
The Indian rupee strengthened against the US dollar on Friday, recording its biggest monthly gain since February. Measures taken by the Reserve Bank of India (RBI) to control dollar demand and support the domestic currency helped reduce pressure on the rupee.
However, high crude oil prices and continued foreign portfolio outflows remained concerns.
The rupee closed at 94.95 against the US dollar on Friday, compared with 95.26 in the previous session. It gained around 1% during October, marking its strongest monthly performance since February.
In February, progress in US-India trade negotiations had improved market sentiment and supported the rupee. However, renewed tensions in the Middle East later reversed the trend.
Market analysts have placed immediate resistance for the USD/INR pair at 95.00, followed by the 95.30-95.40 range. A sustained rise above these levels could indicate renewed strength in the US dollar.
On the downside, 94.90 is seen as the immediate support level. A fall below this mark could take the currency pair towards 94.40-94.50.
4. Weakness in broader markets
Mid-cap and small-cap stocks remained under pressure, with the Nifty Smallcap and Midcap indices declining by up to 2% on Friday.
Sudeep Shah of SBI Securities said the Nifty Midcap 100 and Nifty Smallcap 100 indices had ended in negative territory for the second consecutive month.
However, both indices recovered significantly from their lower levels during the final week of the month. They also formed bearish candles with long lower shadows, suggesting that investors were showing interest in buying stocks at lower levels despite the overall weakness.
Both indices continue to trade below their important short-term and long-term moving averages, which are still moving downwards. This indicates that the broader market trend remains weak.
The Nifty Midcap 100 is expected to find immediate support in the 56,500-56,400 range. On the upside, the 58,200-58,300 zone, around its 20-day exponential moving average (EMA), is likely to act as resistance. A decisive move above this level could take the index towards 59,300.
Similarly, the Nifty Smallcap 100 has immediate support at 18,100-18,000. Its 20-day EMA zone of 18,800-18,850 is expected to act as resistance. A sustained move above this range could improve market sentiment and push the index towards 19,250 in the near term.
Technical indicators improve
Recent market movements suggest that selling pressure has eased, with the Nifty showing signs of forming a base near an important support level. The improvement is also visible in shorter time-frame charts.
The Nifty has moved back above its 20-day EMA, which has started trending upwards. Meanwhile, the downward movement of the 50-day and 100-day EMAs has slowed considerably, suggesting a gradual improvement in the market trend.
The daily Relative Strength Index (RSI) has also crossed the 50 mark and continues to move higher. These developments indicate a possible improvement in market momentum and raise hopes of a stronger recovery.
Sudeep Shah said the improving technical indicators suggest that the benchmark index could extend its ongoing recovery over the next few trading sessions.
From a trading perspective, the 22,800-22,750 range is an important support zone. The Nifty will need to remain above this level to sustain its recovery.
On the upside, the 50-day EMA, placed in the 23,150-23,200 range, is likely to act as the immediate resistance. A decisive move above this level could improve the short-term outlook and open the way for a further recovery towards 23,500.
