Investors need to wait for directional confirmation

Influenced by a blend of domestic and global factors, the domestic stock market ended lower for the second consecutive week. Contributing to tempered sentiment are mixed corporate earnings, persistent FII selling and uncertainty over tariff discussions with US.

For the week, BSE Sensex fell 722.43 points or 0.86 percent to finish at 83,216.28 and the Nifty shed 229.8 points or 0.89 percent to end at 25,492.30. In the broader market, the BSE Mid-cap Index declined 0.6 percent and the BSE Small-cap index fell 1.5 percent. FIIs sold equities worth Rs1,632.66 crore, while DIIs bought equities worth Rs16,677.94 crore.

FIIs have sold Indian equities worth Rs12,569 crore in November so far, taking the total outflow tally to Rs1,52,479 crore in 2025. The continued FII selling is attributed to the underperformance of India markets vis-à-vis other major markets this year. It is important to understand that many FIIs, particularly the hedge funds, are selling in India and buying in other markets, which are driven by AI trade.

The US, China, South Korea and Taiwan are regarded as AI winners, while India is widely regarded as an AI loser. During the week, the Indian rupee traded near record low of 88.80.

However, it ended modestly higher at 88.66 per dollar for the week compared to earlier week’s closing of 88.77.Domestically, positive cues such as higher GST collections, strong festive-season retail sales, and progress in India-US trade discussions offered some support.

However, sentiment remained fragile on the back of persistent FII selling, weak rupee and concerns over stretched valuations in AI-related stocks across the globe. Even as benchmark indices continue to witness renewed selling, the real buzz in the market has shifted to the primary market.

The consequence is an overheated primary market and a subdued secondary market. Observers are saying that the entire IPO story is ‘becoming more and more murky,’ citing a worrying pattern of companies suddenly turning profitable just ahead of their public issue.

Many of these companies are reporting profits only in the last quarter before they come for IPO, or the last year after being in losses for years. This trend, raises serious questions about transparency and earnings quality. The markets traded in a broadly consolidative manner over the past week, staying within a defined range, while witnessing some volatile intraday swings.

In the week ahead, it is expected that markets will remain highly stock-specific. Protecting profits at higher levels and adopting a measured approach will be essential. Caution is advised in fresh long exposure. Expect knee jerk reaction in the markets on the back of outcome of Bihar Assembly Election outcome.

As President Trump mentioned plans to visit India soon for further trade discussions, any positive developments on that front could provide upward momentum to the markets. The best way to navigate the coming week would be to stay light, trail stop losses diligently, and await directional confirmation.

AI Stocks Bubble or Correction: For many of the most speculative assets the selloff started last month. We don’t know whether last week’s correction is the start of a serious market plunge across the globe.

But it does tell us something about what’s been going on. For anyone who hasn’t been paying attention, the answer can be summed up in one word: Speculation.

The more speculative an asset, the harder it fell last week. Big Tech and artificial intelligence, penny shares, retail-investor favourites, and crypto all dropped together. Gold fell too, failing in its role as a haven asset after attracting lots of new buyers with a big rise this year.It’s too early to draw firm conclusions.

But it’s notable that for many of the most speculative assets the selloff started last month—but until last week it hadn’t drawn in the biggest companies. The attention now is on expensive artificial-intelligence stocks.

The Magnificent Seven Big Tech stocks fell 2.2 per cent, compared with a drop of less than one per cent for the rest of the S&P-500. Smaller stocks that have an AI sheen and are popular with retail investors were hit extremely hard.

Penny shares are the purest expression of retail trading, bizarrely popular with small investors while ignored by professionals. And last week, they were dumped en masse: Share price was the best indicator of stock performance, with the cheapest shares dropping the most.

In financial theory the dollar share price should not matter to performance, except around delisting, since it depends on how many shares are issued. But the share price matters to retail traders, so when speculation dominates, it matters to everyone.

Crypto thrives on speculation, and suffers when the speculators pull in their horns. So it was notable that Bitcoin dropped sharply to below $100,000 and was briefly in a bear market, down 20 per cent from its peak last month.

Last month saw an end to an early autumn sugar rush for a surprising number of heavily traded stocks and gold as well as Bitcoin, all of which have been falling after making big gains in a short period. This might help explain the speed of last week’s selloff.

Traders were on edge as they watched their profits in small stocks disappear, so once bigger shares started to drop they were eager to cash in. Investors have grown more concerned over the run-up in tech stocks and valuations of private AI companies, stoking fears of a bubble. What the selloff doesn’t tell us is whether the AI boom driving the market is over.

Bubbles end with a bang, but there are plenty of bad days as they inflate. In January 2000 there were five daily losses of more than three per cent in the Nasdaq, the most of any month since October 1987’s Black Monday crash. Yet the Nasdaq gained another 28 per cent before peaking in early March 2000. If we’re lucky, last week’s losses will help temper their enthusiasm.

Simply seeing that a trend has gone too far or that a particular industry is stagnating seldom produces good returns. To really be different, you have to do something new. New ideas are the best and most profitable way to be a contrarian.

F&O/ SECTOR WATCH

Mirroring the cautious undertone in the underlying cash market, the derivative segment witnessed brisk but cautious trades. Whereas the Nifty witnessed correction, the Bank Nifty consolidated at higher levels and closed the week on a positive note with marginal gains.

On the sectoral front, Nifty Media index shed 3.2 per cent, Nifty Defence index fell 2 per cent, Nifty Metal index declined 1.7 per cent, Nifty IT index shed 1.6 per cent, however, Nifty PSU Bank index gained 2 per cent. In the options segment, the highest Call Open Interest for the Nifty was observed at the 25,700 and 26,000 strike levels, whereas notable Put OI was concentrated at the 25,400 and 25,300 strikes.

For the Bank Nifty, significant Call OI was seen at the 58,000 strike, with substantial Put OI at the 58,000 strike. Implied Volatility (IV) for Nifty’s Call options settled at 10.59 per cent, while Put options concluded at 11.85 per cent.

The India VIX, a key indicator of market volatility, concluded the week at 12.41 per cent. The Put-Call Ratio Open Interest (PCR OI) stood at 1.04 for the week. The long-term trend for both indices remains intact and continues to be bullish.

After struggling to surpass the record peak, spooked by a swift bout of profit-taking; from the recent high of 26,104, the Nifty slipped nearly 800 points in just 10 trading sessions, reflecting short-term fatigue after an extended rally.

Going forward, the zone of 25,300–25,250 is expected to act as a critical support for the Nifty index. On the upside, the 25,650–25,700 range emerges as a crucial resistance. A sustained move above 25,700 could trigger a fresh leg of the rally, potentially driving the index towards 26,000, and eventually 26,300 in the short term.

Stocks looking good are Ashok Leyland, Divi Labs, Dabur, PI Inds and UPL.Stocks looking weakare ABB, Blue Star, Kaynes, Concor, Titagarh, PFC and Zydus Life.

(The author is a senior maket analyst and former vice-chairman, Andhra Pradesh State Planning Board)

STOCK PICKS

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