Can Diwali week light up Dalal Street amid volatility and FII outflows?

As Diwali week begins, a sense of optimism is returning to Dalal Street. After a tough six-day losing streak, the Nifty index made a surprising comeback with a 158-point rally. The lift has many investors feeling hopeful, despite foreign institutional investors (FIIs) selling off a significant Rs 3,228 crore in shares, which outweighed domestic institutional purchases of Rs 1,401 crore.
Despite today’s dip on Dalal Street, market experts remain optimistic about the outlook for investors, highlighting several positive developments. Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, suggested that Monday’s rally shows resilience in the market.
He pointed out that while FII selling has eased somewhat, concerns about India’s high valuations and economic growth for FY25 may keep some pressure on the market.
“An interesting feature of yesterday’s 158 point rally in the Nifty is that the up move happened despite the FII sell number at Rs 3,228 crore being higher than the DII buy number of Rs 1,401 crore. The implication of this change in trend, despite the persistence of FII selling, is that the retail investors are back in buying mode,” he said.
“The decline in the intensity of FII selling bodes well for the market but FIIs may continue to sell since the premium valuations of the Indian market is being questioned now in the context of concerns regarding FY25 growth and weakness in urban consumption,” he added.
However, he noted a positive trend as some previously overvalued stocks, particularly in defence and railways, have corrected. This could open the door for more quality investments, especially in private-sector financials.
“A positive trend in the market is that some froth in valuations has been removed as evidenced by the sharp correction in the overvalued defence-related stocks and Railways stocks. The shift to quality observable in the accumulation of quality private sector financials is a healthy trend that can sustain,” Vijayakumar explained.
Adding to the good news, oil prices have dropped below $68 per barrel as tensions in the Middle East eased. This is another boost for investors in the Nifty.
Prashanth Tapse, Senior VP of Research at Mehta Equities, said, “”This Diwali week brings optimism to Dalal Street as Nifty traders celebrate a significant drop in oil prices, now below $68 a barrel, following reports that Israeli airstrikes did not target critical Iranian facilities.”
He highlighted that banking stocks played a key role in the market’s lift, driven by strong quarterly earnings from ICICI Bank, Bandhan Bank, Indian Bank, and Bank of Baroda. “Banking stocks led the charge in yesterday’s trade, with ICICI Bank, Bandhan Bank, Indian Bank, and Bank of Baroda all posting robust Q2 earnings,” he noted.
“However, caution prevails due to upcoming US jobs data and the presidential election, alongside heavy FII outflows. As for trades, Nifty and Bank Nifty remain bullish, with strong upside potential in stocks like HCL Tech, Bank of Baroda, and Berger Paints,” Tapse added.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)