The reversal is nothing short of spectacular. Five consecutive sessions of gains have market veterans asking whether this Diwali rally marks the dawn of a new bull cycle or just a festive flash in the pan.
“We have probably seen the peak of pessimism and negative sentiments for India,” declares Dr. Vikas Gupta, CEO & Chief Investment Strategist at OmniScience Capital, who expects Samvat 2082 to “show fireworks behind expectations as the global wars start subsiding, global and Indian interest rates come down, and trade wars start reaching settlement.”
The rally, however, remains largely concentrated in frontline stocks and institutional favourites, with Nifty Bank surging over 6% this month while midcap and smallcap indices posted modest 3-4% gains, signaling that the broader market is still catching its breath.
Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, points to the critical metric: “The single major factor is the sharp decline in India’s earnings growth to 5% in FY 25 from the average 24% during the three years before that.” But he sees a turnaround brewing, automobile and white goods sales have “shot up early this festive season,” potentially lifting earnings growth to 8-10% in FY 26, accelerating to 15% in FY 27.
“Since ‘in the long run the market is a slave of earnings,’ the major trend, going forward, will depend on how earnings growth pans out,” Vijayakumar warns, tempering enthusiasm with reality.Vinit Bolinjkar, Head of Research at Ventura Securities, is targeting 27,600 for the Nifty and 90,100 for the Sensex this Samvat, implying substantial upside from current levels. The weak FY25 earnings trend “now appears to be bottoming out, indicating a more constructive setup for Samvat 2082,” he says.He cites a revival in domestic consumption-driven earnings from Q3FY26, a potential US–India trade deal, and continued fiscal and monetary support — including rate cuts and higher government capex — as key drivers. The Nifty currently trades at a CY26 forward P/E of 18x, only marginally above its long-term average of 17x, suggesting that “the potential for further downside is limited.”
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The FII reversal
After selling stocks worth over Rs 76,600 crore in the previous three months, foreign investors turned net buyers in October, with inflows of Rs 7,300 crore.
The FII underweight stance on India is currently the highest since 2009. “With earnings recovery in sight, the same underweight stance could make them cover the gap. The incremental risk-reward favours India, and FIIs are expected to return soon,” said Alok Agarwal, Head – Quant and Fund Manager at Alchemy Capital Management.
The recent FII U-turn can be directly linked to the stabilisation seen in earnings trends. Nifty EPS downgrades have steadied over the past month, with a marginal 1% uptick, as analysts suggest earnings may have bottomed out. A recovery in H2FY26 is anticipated, driven by a rebound in consumption.
“We expect positive momentum in the broader markets to continue in the medium term. A key positive is that consensus estimates have stabilised in the last month, though the true test will come in the ongoing Q2FY26 earnings season. Nifty valuations have moderated to near long-term averages, though broader, granular metrics still indicate elevated P/Es,” said Seshadri Sen, Head of Research and Strategist at Emkay Global Financial Services.
OmniScience Capital’s Gupta remains overweight on banks, power, EPC, infrastructure, and housing finance, sectors trading at discounts to their intrinsic values. He expects defence and railways to continue receiving large government allocations, along with export incentives to further boost the Indian economy in Samvat 2082.
Emkay’s Sen favours discretionary stocks as his top overweight, while remaining underweight on financials and staples amid growth challenges.
As Diwali lights illuminate trading floors across Mumbai, the bulls are betting this isn’t just festive euphoria, but the start of something bigger. Whether that bet pays off hinges on one question: can Indian companies finally deliver on earnings after a year of disappointment?