Indian stocks could rebound in November after slipping into oversold territory in October. Brokerages said elevated crude oil prices and money flowing into AI-linked markets may limit any rally. IIFL Capital noted, "Nifty's relative outperformance will be a tough task." The Nifty 50 saw year-to-date losses of about 13% this year.
Indian stocks could rebound in November after slipping into oversold territory, but elevated crude oil prices and money flowing into AI-linked markets may limit any rally, two brokerages said.
The benchmark Nifty 50 briefly dipped into oversold territory in October, taking its year-to-date losses to about 13%, in what could be its worst annual performance in over a decade.
The oversold zone means that the relative strength index of a stock or an index has fallen below 30, implying a potential short-term rebound, though it does not guarantee that the downtrend has ended.
The index ended virtually flat in the October derivatives series that ended on Tuesday, while mid- and small-caps lost about 4% each during the period.
"With factors like elevated crude prices and global participants' continued interest in the AI trade, Nifty's relative outperformance will be a tough task," IIFL Capital said in a note.
IIFL sees scope for a technical rebound to 23,300 to 23,500, but said only favourable announcements that boost market sentiment or revive foreign flows could trigger a sharp short-covering-driven rally beyond 23,500.
Nuvama said the investor positioning for the November series, which began on Wednesday, indicates that the "market remains directionally inconclusive."
"Oversold conditions could lift Nifty toward 23,250, but a sustained rally would require a decisive break above 23,480," Nuvama said.
Foreign investors cut their index short positions in the Nifty 50 to 221,000 contracts at the end of the October derivatives series from 267,000 at the beginning. They also added long contracts in single-stock futures and reduced index futures open interest during the monthly derivatives series, according to Nuvama.
The positioning suggests the foreign investors have shifted from aggressive bearishness toward a more balanced stance, Nuvama said.
While Indian markets remained flat in October, MSCI's emerging markets index slid 7.4% as investors reconsidered AI bets amid soaring valuations.
"Even when the AI trade unwound briefly during the month, apart from some brief short covering-led rally, momentum fizzled out quickly (in India)," IIFL Capital said.
As the world's third-largest crude importer, India is vulnerable to higher oil prices, which can fuel inflation, strain public finances and squeeze corporate profits.
SECTORAL POSITIONING
The 16.3% surge in information technology stocks, following better-than-expected quarterly results and a brief unwinding of the AI trade, helped benchmarks offset losses from elevated oil prices during the October series.
IIFL called buying in the IT sector the only silver lining in the October series.
Meanwhile, Nuvama sees meaningful additions in bullish positions in IT and telecom in November, while pointing to defensive positioning in metals, autos and FMCG.