Pulse of the Street: Best week since April puts recovery to the earnings test

The gains extended the previous week's rebound, which broke an eight-week losing streak. The challenge now is to turn that recovery into a broader advance backed by earnings rather than sentiment alone.

Rupee lends support

The Indian rupee strengthened to ₹94.96 against the dollar on Friday from ₹96.74 a week earlier, easing currency pressures.

Sanjit Singh Paul, smallcase manager and managing director at Modulor Capital, attributed the rebound to Reserve Bank of India (RBI) measures supporting the rupee, softer US yields, positive IT results and domestic institutional buying. The RBI opened a special dollar window for oil companies, diverting their demand from the spot market, and tightened currency-hedging rules.

But the stock-market rally has yet to spread across the broader market. The BSE LargeCap index gained 1.85% during the week, outpacing the MidCap index's 0.99% rise, while the SmallCap index slipped 0.02%.

Paul cautioned that midcap, smallcap and microcap stocks had not kept pace with the benchmark rally. “The current move is definitely worth watching, but has not established itself as sustainable,” he said.

Domestic institutional investors net bought ₹11,474 crore of Indian equities during the week through Thursday, cushioning continued foreign selling. Foreign portfolio investors net sold ₹538 crore over the same period.

Prashant Singhal, partner and leader, Clients & Industries, EY India, pointed to systematic investment plan contributions as a source of domestic support. Resilient consumption, industrial activity and manufacturing also supported his positive longer-term outlook.

IT rally needs earnings to deliver

The BSE Information Technology index surged 11%, bucking sharp losses in Asian technology markets. The rally followed a sell-off that had left valuations more attractive and expectations for earnings more favourable.

Gurmeet Singh Chawla, managing director at Master Portfolio Services Ltd, attributed the rebound to cheaper valuations, better earnings expectations and short covering. “Sentiment alone won’t hold the rally, though. Companies will need to show faster revenue growth and a healthy deal pipeline,” Chawla said.

Paul said contract wins, better margins and AI-generated revenue supported Indian IT results. Overseas semiconductor stocks, by contrast, faced concerns about valuations, financing costs and returns on infrastructure spending. “The gains do have a credible earnings foundation.”

Yet improving results at larger companies do not necessarily signal a broader revival in technology spending. Sustaining the rally would require stronger organic revenue growth, Paul added. A firmer rupee could also erode the currency benefit that supported margins in the latest quarter, while delayed client spending remained a risk.

Beyond IT, the BSE Auto index gained 3.4% and Realty rose 2.8%. Utilities and Oil & Gas advanced 2.1% each, while Metal climbed 1.8%. Healthcare fell 1.1%, Services slipped 0.9% and FMCG declined 0.3%.

Oil keeps earnings risks alive

Global markets offered a mixed backdrop. US consumer prices rose 3.7% year-on-year in September, pushing expectations of an October Federal Reserve rate increase to roughly 50% after Wednesday's release. Concerns about financing AI infrastructure also weighed on technology stocks.

Asian markets were particularly weak. Indonesia's Jakarta Composite and South Korea's Kospi fell about 15% each, while Taiwan's Taiex lost 4.5% and Japan's Nikkei 225 declined 5.3%. In Europe, Britain's FTSE 100 and France's CAC 40 gained 2.77% and 2.15%, respectively. The Nifty ranked among the best-performing global benchmarks tracked during the week.

Crude oil remained a key risk for Indian companies despite a modest easing in prices. Brent crude spot price slipped 0.36% during the week to $104.43 a barrel. US 10-year Treasury yields declined to about 5.09% on Friday from 5.21% on 13 October.

Paul cautioned that oil above $100 continued to threaten corporate margins. Passing higher costs on to customers could weaken demand, adding another constraint on earnings growth.

Banks face the next test

Investors will also look to banks for evidence that the recovery can extend beyond IT. The Union cabinet on Wednesday approved the sale of a 60.72% stake in IDBI Bank to a Fairfax Financial Holdings entity for about ₹52,877 crore. The transaction comprises the government's 30.48% holding and LIC's 30.24% stake.

Attention now turns to bank earnings and management commentary, particularly from HDFC Bank and ICICI Bank, alongside the domestic interest-rate outlook, Paul said.

“The rally can run longer if earnings stay strong, crude eases and foreign selling slows. If not, the current strength may turn out to be only a short-term rebound,” Chawla said.

Next week has four trading sessions, with markets closed on Tuesday for Dussehra. The more immediate test, however, is whether the rally can draw in more stocks beyond the headline indices. “More stocks need to join the headline index-led rally to determine whether gains continue or fizzle out,” Paul said.

Mayur Bhalerao

Mayur Bhalerao is a markets reporter at Mint with around 12 years of experience across finance and media. His coverage focuses on Indian equities, IPOs and broader market trends, tracking developments across large-cap, mid-cap and small-cap stocks as well as shifts in investor behaviour among retail investors, mutual funds and foreign portfolio investors.Mayur’s reporting emphasises data-driven analysis of market movements, valuations and sectoral trends. He uses shareholding disclosures, financial filings and market data to explain developments on Dalal Street and examine how global events and domestic policy changes—including geopolitical tensions, crude oil prices and regulatory decisions—shape Indian equities and investor sentiment.He regularly uses financial databases such as the Bloomberg terminal and Capitaline to produce data-intensive stories, analysing company disclosures, ownership patterns and sectoral trends across both Indian and global markets. He also supports colleagues in the newsroom by providing database-driven insights and market data analysis that help strengthen broader market coverage.Before joining Mint, Mayur worked at Informist Media Pvt Ltd., a leading financial newswire, where he developed his expertise in financial journalism in a specialised markets newsroom.