Global Market Dynamics and Overnight Developments

US Market Weakness Dampens Sentiment

Wall Street experienced a notable pullback from record highs on Tuesday, with the S&P 500 declining 0.38% to 6,714.59, ending its seven-day winning streak. The Nasdaq Composite fell more sharply by 0.67% to 22,788.36, while the Dow Jones Industrial Average dropped 91.99 points to close at 46,602.98. The correction was attributed to growing concerns about excessive valuations in AI-related stocks and uncertainty over the extended US government shutdown, now in its seventh day.

Oracle Corporation shares tumbled after reports suggested the company’s cloud computing margins are lower than Wall Street estimates, reigniting fears about an AI bubble similar to the dot-com era 25 years ago. The broad-based selling was further exacerbated by a New York Fed survey indicating weakening consumer expectations and higher inflation projections.

Asian Markets Show Mixed Performance

Asian markets opened with a mixed bias on Wednesday morning. Japan’s Nikkei 225 gained 0.28% and the Topix rose 0.62%, supported by the World Bank’s upward revision of China’s 2025 GDP growth forecast to 4.8% from 4.0%. However, Hong Kong’s Hang Seng slipped 0.89%, reflecting continued concerns about Chinese market stability despite the positive growth revision. Mainland China and South Korean markets remained closed for holidays.

The divergent performance across Asian markets reflects the complex interplay between global monetary policy expectations and regional economic fundamentals, with investors weighing the Federal Reserve’s dovish stance against persistent growth concerns.

Domestic Market Performance Analysis

Index Performance and Breadth

Tuesday’s session demonstrated the resilience of domestic markets despite global headwinds. The Sensex advanced 136.58 points (0.17%) to 81,926.75, while Bank Nifty outperformed with a gain of 134.50 points (0.24%) to close at 56,239.35. The broader market participation remained healthy, with the BSE Midcap index adding 0.4%, though the Smallcap index ended marginally lower.

The market witnessed broad-based sectoral participation, with the Nifty Realty index emerging as the standout performer, surging 1.09%. This was followed by the Nifty Oil & Gas (+0.49%), Nifty Pharma (+0.44%), and Nifty IT (+0.35%) sectors.

The banking sector maintained its momentum with a 0.24% gain, supported by strong quarterly business updates from major lenders and attractive valuations following recent corrections. Among individual stocks, Jio Financial, Bharti Airtel, Eternal, Eicher Motors, and HCL Technologies were the top Nifty gainers, while Trent, Tata Motors, Axis Bank, Tata Consumer, and HUL led the decliners.

Institutional Flow Dynamics

FII Sentiment Turns Positive

The most significant development was the sharp turnaround in Foreign Institutional Investor sentiment, with FIIs becoming net buyers to the tune of ₹1,440.66 crore on Tuesday after 10 consecutive sessions of selling. This marked a crucial inflection point, breaking the month-long pattern of sustained FII outflows that had weighed on market sentiment.

Date	FII Net (₹ Cr)	DII Net (₹ Cr)	Net Combined (₹ Cr)
Oct 1	-1,605.20	2,916.14	1,310.94
Oct 3	-1,583.37	489.76	-1,093.61
Oct 6	-313.77	5,036.39	4,722.62
Oct 7	+1,440.66	+452.57	+1,893.23
Month-to-Date	-2,061.68	+8,894.86	+6,833.18

Institutional flow patterns showing FII turnaround and consistent DII support

DII Support Remains Consistent

Domestic Institutional Investors continued their supportive stance, recording net purchases of ₹452.57 crore, marking their 29th consecutive session as net buyers. The cumulative DII buying in October has reached ₹8,894.86 crore, effectively offsetting the earlier FII selling pressure and providing a strong foundation for market stability.

Technical Analysis and Trading Outlook

Nifty 50 Technical Setup

From a technical perspective, Nifty 50 formed a shooting star candlestick pattern on Tuesday, characterized by a small real body with a long upper shadow, typically indicating potential reversal or consolidation after a strong rally. However, confirmation of this bearish reversal signal requires a decisive negative close in subsequent sessions.

Bank Nifty Outperformance

Bank Nifty demonstrated exceptional strength, continuing its upward journey for the sixth consecutive session and closing at its highest level since July 25. The banking index has broken above the crucial 56,000 level and is now targeting 56,400-56,800 in the near term.

Key Trading Levels for October 8:

• Nifty 50 Resistance: 25,200, 25,250, 25,300

• Nifty 50 Support: 25,000, 24,950, 24,880

• Bank Nifty Resistance: 56,400, 56,600, 56,800

• Bank Nifty Support: 56,000, 55,900, 55,800

Derivatives Market Analysis

Options Data and Volatility

The India VIX declined 1.39% to 10.05, indicating continued low volatility expectations and stable market sentiment. In the options market, significant open interest buildup was observed at the 25,000 PUT and 25,200 CALL strikes, clearly demarcating the immediate trading range.

The Put-Call Ratio (PCR) for Nifty options remained elevated, reflecting sustained bullish sentiment among options traders. However, the heavy call writing at 25,200 strikes suggests that traders remain cautious about immediate upside beyond current levels.

Derivative Insights:

• Maximum Call OI: 25,200 strike (indicating resistance)

• Maximum Put OI: 25,000 strike (indicating support)

• India VIX: 10.05 (-1.39%)

• PCR: Elevated, indicating bullish sentiment

Corporate Developments and Earnings Outlook

Key Corporate Updates

Several major corporations provided encouraging quarterly business updates that supported market sentiment. Bank of India reported strong year-over-year growth with global business expanding 11.8% to ₹15.61 lakh crore, while Metropolis Healthcare delivered robust Q2 performance with consolidated revenue surging 23% year-over-year.

Bharti Airtel emerged as a significant gainer after winning a major cybersecurity contract, highlighting the company’s diversification strategy beyond traditional telecom services. The broader telecom sector gained 0.35%, supported by improving industry fundamentals and 5G rollout momentum.

Earnings Season Preparation

With the Q2FY26 earnings season approaching, market participants are positioning for what is expected to be a muted quarter for IT services, though no material deterioration is anticipated. TCS is scheduled to announce its quarterly results on October 9, which will set the tone for the broader IT sector.

Sector-Specific Analysis

Realty Sector Leadership

The real estate sector’s 1.09% gain was supported by improved demand trends and favorable policy developments. The government’s rationalization of rates for nearly 2,000 medical procedures under the Central Government Health Services Scheme is expected to benefit hospital operators, contributing to the healthcare sector’s outperformance.

Banking Sector Resilience

The banking sector’s continued strength reflects improved asset quality metrics, robust loan growth, and attractive valuations following recent corrections. Private banks, in particular, have benefited from strong quarterly business updates and expectations of stable net interest margins.

IT Sector Recovery

The IT sector’s 0.35% gain signals a potential recovery from recent weakness, supported by expectations of stable enterprise spending and potential benefits from rupee depreciation. However, the sector faces headwinds from concerns about AI-driven productivity improvements potentially reducing demand for traditional IT services.

Market Outlook and Trading Strategy

Near-term Projections

The technical setup suggests that while the immediate trend remains bullish, the formation of a shooting star pattern warrants caution. A decisive move above 25,220 could trigger further upside toward 25,400-25,500 levels, representing the trendline resistance connecting major highs from June and September 2025.

However, failure to sustain above 25,220 may lead to consolidation in the 24,700-25,200 range, providing opportunities for selective stock picking and sector rotation strategies.

Risk Factors

Despite the positive momentum, several factors warrant attention:

1. The extended US government shutdown could impact global risk sentiment

2. Rising concerns about AI bubble formation following Oracle’s margin pressures

3. Elevated valuations in certain mid and small-cap segments

4. Dependency on continued DII support amid volatile FII flows

Trading Recommendations

For Wednesday’s session, traders should adopt a buy-on-dips strategy with strict risk management:

• Long positions above 25,150 with targets at 25,220 and 25,300

• Support-based buying near 25,000 with stop-loss at 24,950

• Sector focus on Banking, IT, and Pharma for selective opportunities

• Volatility plays through options strategies given low VIX levels

Conclusion

The Indian equity markets stand at a crucial juncture as they approach the midpoint of October 2025. While the four-day winning streak demonstrates underlying strength and improved institutional sentiment, the shooting star formation suggests potential near-term consolidation. The key catalyst will be the market’s ability to sustain above the 25,200 resistance level while maintaining support at 25,000.

The turnaround in FII flows, combined with continued DII support, provides a solid foundation for market stability. However, global uncertainties, particularly the extended US government shutdown and AI valuation concerns, require careful monitoring. The upcoming earnings season will be crucial in validating current valuations and providing direction for the next phase of market movement.

Investors should remain selective, focusing on sectors with strong fundamental support and attractive risk-reward profiles. The low volatility environment, as indicated by subdued VIX levels, favors momentum-based strategies while maintaining appropriate position sizing and risk management protocols.

Disclaimer: This analysis is for informational purposes only and should not be construed as investment advice. Past performance is not indicative of future results. Investors should conduct their own research and consult with financial advisors before making investment decisions.

Analyst Name: Pradeep Suryavanshi
Bestmate Investment Services Pvt. Ltd.:
A-1-605, Ansal Corporate Park Sec-142, Noida 201305
CIN: U74999UP2016PTC143375
SEBI Registration Number: INH000015996
Website: www.bestmate.in    I    Email: info@bestmate.in

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