Sustainability Of Present Market Momentum Will Hinge On Q4 Earning Season

There is no doubt whatsoever that the temporary pause on tariffs by the US and prospects of negotiations with other countries have contributed to the relief rally that the markets have had. The 25 bps rate cut by the Reserve Bank of India (RBI) on April 9, which brought the repo rate down to six per cent, and the shift in its stance from ‘neutral’ to ‘accommodative,’ added fresh momentum to the equity markets as investors priced in further monetary easing.

One has to keep in mind that several factors have converged to drive the recent sharp rally in Indian mar-kets, despite global trade uncertainty. Over the last three trading sessions, foreign portfolio investors have purchased over $one billion worth of Indian equities after a prolonged selling streak. Additionally, foreign allocations had dropped to their low-est level in years, leaving global funds structurally underweight on India and creat-ing a significant allocation gap, which could potentially lead to further buying in the future.

Ironically, the markets have already seen robust value-based buying from lower lev-els, accompanied by a sharp surge in volumes. The recent fall near previous swing lows attracted bargain buying, forming a potential double bottom pattern. The Rela-tive Strength Index (RSI) stands at 61, indicating solid strength in prices, while the market’s close above a cluster of key moving averages has further reinforced under-lying momentum. Market analysts opine that this sharp rally in equities over the past week has been driven by a combination of softened valuations from the earlier correction, a relief rally due to the US tariff pause, and positive cues from RBI’s monetary policy.

But, sustainability of this momentum will largely hinge on the up-coming Q4 earnings season. Many big companies are set to release their quarterly and full-year FY25 earnings in the coming week. These results will be pivotal in shaping the market’s direction, as investors and market participants closely evalu-ate corporate performance and forward guidance.

Disappointing earnings could dampen the current market sentiment and erode re-cent gains. Market analysts point out that the market is now approaching a key re-sistance zone between 23,800 and 24,000. A break-out above this level could pro-pel the index towards 24,800. To the uninitiated, zone of resistance is an upper boundary that the stock has not previously broken through, and is the opposite range to the zone of support. This zone of resistance provides high probability areas where a reversal or continuation of an upward trend may occur.

The uptrend, backed by strong volumes and a solid RSI, indicate an underlying momentum and strength. Buying on declines remains a viable strategy as long as the index stays above its key moving averages. However, if resistance persists at the 23,800–24,000 range and the market dips to below its moving averages, the sentiment may shift towards a ‘sell on rise’ approach. That’s what the experts feel. But how all these factors actually play out in the market remains to be seen.