A spectacular late rally has revived hopes for Indian equities this Deepavali. The Nifty 50 surged over 9 per cent in seven sessions, aided by softer crude, foreign buying and hopes of easing geopolitical and trade tensions after the US mid-terms. Yet, the rebound has failed to erase the losses incurred over the past year.

The benchmark has slipped 3.15 per cent since Deepavali last year (October 20, 2025), marking its weakest festival-to-festival performance since 2011. The broader Nifty 500 declined 1.1 per cent.

Can the next Samvat sustain the recovery? History offers hope, but geopolitical tensions, AI bubble concerns, elevated global bond yields and stretched domestic valuations pose risks. domestic valuations pose risks.

An analysis by bl.portfolio of Deepavali-to-Deepavali market performance since 2000 shows that negative years have frequently been followed by gains. The notable exceptions were three consecutive periods — from Deepavali 1999 to Deepavali 2000, 2000 to 2001, and 2001 to 2002 — when the Nifty declined 8-13 per cent in each period. This was followed by a strong recovery.

The Nifty surged 58.19 per cent between Deepavali 2002 and Deepavali 2003, and an extraordinary 91.53 per cent between Deepavali 2008 and Deepavali 2009, as markets rebounded from the global financial crisis. More modest recoveries of 9-10 per cent followed the declines in the Deepavali periods ending in 2012, 2016 and 2023.

The Nifty 500 also rebounded in five of six completed instances, gaining 100.76 per cent between Deepavali 2008 and Deepavali 2009. Such recoveries offer encouragement, but are no guarantee of a similar outcome.

Reasons for optimism

The latest market rally has brought a sharp turnaround in sentiment. The Nifty gained 8.58 per cent in the week ended November 6, its strongest weekly performance in nearly six years.

Lower crude prices, renewed overseas buying and changing global expectations have supported the rebound. The correction in global technology stocks has also raised the possibility of investment flows rotating towards other markets, including India, although sustained inflows are far from assured.

Domestic institutions provided another cushion. FIIs withdrew about ₹2.76- lakh crore between Deepavali 2025 and November 5, 2026, while mutual funds invested ₹5.37-lakh crore through November 4. In the preceding festival-to-festival period, FII outflows were ₹1.48-lakh crore against MF purchases of ₹4.74-lakh crore.

Valuations & risks

NSE data show the Nifty 50 trailing P/E ratio contracting by over 9 per cent, from 22.72 to 20.65 times. The Next 50, Midcap 150 and Microcap 250 saw sharper P/E compression of 17-20 per cent, despite posting positive index returns, indicating an improvement in underlying earnings relative to prices. However, cheaper need not mean cheap. The Smallcap 250’s P/E actually rose from 30.77 to 31.99 times.

The sustainability of any domestic market rebound will depend substantially on corporate profit growth, which, in turn, will be influenced by geopolitical developments and the trajectory of AI investments.

A recovery accompanied by stronger earnings and stable valuations would offer firmer support than one driven primarily by renewed investor enthusiasm.

The biggest immediate uncertainty may come from overseas markets. The sharp correction in US technology stocks has raised concerns over whether massive AI investments can generate sufficient returns. A deeper sell-off could trigger foreign outflows, currency volatility and dampen investor appetite for emerging-market equities, including Indian stocks.

Elevated US bond yields, amid inflation and fiscal concerns, could put pressure on equity valuations and foreign fund flows. A spike in crude oil prices or worsening geopolitical tensions could also fuel domestic inflation and constrain monetary easing.

While valuations have moderated from their earlier excesses, the key question is whether they are attractive in a world of persistently higher interest rates and geopolitical uncertainty.

The domestic market also presents a more uneven picture than the headline indices suggest. Against the Nifty 50’s 3.15 per cent decline, the Next 50 gained 3.18 per cent, the Midcap 150 rose 1.58 per cent and the Smallcap 250 advanced 1.27 per cent. Microcaps led the gains, rising 5.42 per cent.

Sectoral performance was sharply divided. Pharma and metals gained over 24 per cent each, while capital-market stocks advanced 22.1 per cent. FMCG fell 17.3 per cent and IT lost 6.6 per cent, extending their declines from the preceding year.

But these pockets of strength conceal considerable stock-level damage. An examination of 481 stocks in the current Nifty 500 universe found that 272, or 56.5 per cent, posted negative returns. As many as 129 stocks lost more than 20 per cent, while the median stock declined 5.15 per cent, nearly five times the benchmark’s 1.09 per cent decline.

History also suggests that recovery years can test investors’ patience. In the five positive years following negative Nifty returns, the benchmark experienced maximum peak-to-trough declines ranging from nearly 10 to 19 per cent. The median drawdown was over 15 per cent. The period from Deepavali 2025 to the present saw a maximum drawdown of 15.56 per cent, even though the index ended the regular trading week ahead of Deepavali 2026 just 3.15 per cent lower.

The outlook for the next Samvat is cautiously encouraging, though risks from an AI-led global sell-off, rising bond yields, foreign selling and earnings disappointments remain. History offers hope, not a guarantee of recovery. Chasing prices after a sharp rally could prove costly. The lesson from last Samvat is clear: valuations matter.

Published on November 7, 2026