Indian equity markets are gearing up for a strong start to the trading week, fueled by renewed optimism surrounding a potential trade agreement with the United States and a significant recovery in the value of the rupee. Analysts predict that the benchmark indices, the Sensex and Nifty 50, will open higher on Monday following a positive trend shift in foreign investor activity.
FPIs Turn Bullish, Rupee Stages Sharp Recovery
The sentiment shift is backed by concrete data from the exchanges. After a period of selling, foreign portfolio investors (FPIs) turned net buyers in the cash market, purchasing shares worth a provisional ₹1,830.89 crore over recent sessions. Concurrently, they aggressively closed out their bearish derivative positions on Friday. This shift coincides with the Indian rupee's best single-day gain in over three years. The currency closed at 89.29 against the US dollar on Friday, sharply up from ₹90.25 on Thursday, aided by interventions from the Reserve Bank of India.
"Hopes have been drummed up about a trade deal and the rupee strengthening above the 90 to the USD mark," said Rajesh Palviya, head of research at Axis Securities. He added that this development "opens the door for upside to 26,200 in the very short term" for the Nifty index.
Derivatives Data and Global Cues Signal Strength
The bullish momentum was evident in Friday's trading, where short-covering propelled the Nifty to 25,966.40 and the Sensex to 84,929.36, each gaining over half a percent. A further positive signal came from the Gift Nifty, which closed at 26,172—206 points above the Nifty's Friday close—indicating sustained short-covering and cash buying interest for the upcoming session.
A detailed look at the options data reveals the extent of the positioning change. FPIs slashed their net bearish bets on index call options, turning from a net seller of 41,468 contracts on Thursday to a net buyer of 16,685 contracts on Friday. They also reduced their net long positions on Nifty put options from 271,232 contracts to 223,109 contracts. In index futures, they trimmed their aggregate net shorts by 48,123 contracts. This coordinated move of cash buying and unwinding of defensive derivative bets is a classic indicator of building bullishness.
Earnings Focus and Market Outlook for 2025
However, some market veterans advise caution regarding over-reliance on trade deal speculation. Nilesh Shah, Managing Director of Kotak Mahindra AMC, believes the market's expectation for a trade deal has diminished, and investors will increasingly bank on corporate earnings. He highlighted the government's reform push, including potential tax cuts, the implementation of the eighth pay commission, and RBI's interest rate trajectory, as more durable growth drivers.
"The government measures are expected to put ₹6 trillion into consumer hands," Shah explained. "If they decide to opt for purchasing home-grown goods, that could translate into higher earnings growth." He forecasts that in the coming year, midcap stocks will outperform large caps, while small caps may underperform both. Overall market returns are expected to veer towards the 10-12% range.
In the immediate term, weekly options data suggests the Nifty could oscillate between 25,850 and 26,150 levels through Tuesday, indicating a consolidating yet positive bias as the markets absorb the recent flows and global developments.
