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Below the Quote on Weekly Note by Mr. Ajit Mishra, SVP - Research, Religare Broking Ltd

The markets continued their upward momentum for the second consecutive week, with benchmark indices gaining nearly 2%, largely supported by the US Federal Reserve's rate cut. Throughout most of the week, the indices traded within a limited range, but a strong rally on Friday helped Nifty and Sensex close at record highs, reaching 25,790.90 and 84,544.31, respectively. The rally was primarily driven by positive sentiment in global markets following the Fed's decision. Sectorally, realty, banking, and financial stocks performed well, while the IT and pharma sectors experienced some declines. Meanwhile, the broader market indices underperformed, with the midcap index posting marginal gains and the smallcap index falling by nearly 1%.

Although the major event of the Fed’s rate cut is behind us, attention will remain on the US markets for further direction. The Federal Reserve's move to cut interest rates by half a percentage point, its first reduction in over four years, provided a significant boost to markets. The Dow Jones Industrial Average (DJIA) surged to a new record high, approaching the upper boundary of its rising channel at 42,300. A decisive breakout above this level could potentially trigger fresh momentum and drive further gains. However, if the index fails to break through this resistance, some consolidation may occur in the near term.

Domestically, market participants will closely track upcoming economic data releases, which include the HSBC Composite PMI Flash, HSBC Manufacturing PMI Flash, and HSBC Services PMI Flash. These indicators will provide insights into the country's economic health and could influence market sentiment. Additionally, trends in foreign fund flows and crude oil price movements will be critical factors for investors to monitor, as they may impact market direction in the coming weeks.

Looking ahead, the Nifty is approaching a significant milestone at 26,000, with the potential to extend its rally further to 26,500. This extension will depend on continued strength in banking and financial heavyweights, which have been leading the market's upward trajectory. Traders are advised to adopt a "buy on dips" strategy, with key support expected in the 25,150-25,350 zone. Apart from banking and financials, the auto and realty sectors also present opportunities for fresh long positions and pick selectively from other sectors. However, traders should exercise caution in the midcap and smallcap segments, given their recent underperformance.

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