India’s benchmark index Nifty rebounded on Monday after its longest weekly losing streak in 25 years, but the advance offered little clarity on whether the market has found a floor or merely entered a temporary relief rally.

The Nifty rose around 1% on Monday before paring gains, while the Sensex climbed as much as 700 points. The rebound came after the Nifty ended lower for eight straight weeks, with the index losing about 8.7% since the decline began on August 16.

For investors, the immediate question is whether the selloff has created an opportunity or whether the latest gains risk becoming a dead cat bounce before another leg lower.

“After eight weeks of declines the market appears set for a rebound in the near-term,” said V K Vijayakumar, chief investment strategist at Geojit Investments. He said better-than-expected results from Accenture and the appointment of Anup Bagchi as chief executive officer of HDFC Bank could help trigger a turnaround in sentiment.

Still, Vijayakumar cautioned that elevated crude prices, high US bond yields and sustained foreign investor selling remain headwinds. Valuations have become attractive, particularly among large-cap stocks, while strong September auto-sales numbers indicate that the economy remains structurally resilient, he said.

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History has a hint on Nifty trajectory

The market’s prolonged losing streak has created a statistical case for a rebound. Sudeep Shah, vice president of technical and derivatives research at SBI Securities, said the Nifty’s eight-week fall was the first such occurrence in 25 years.

Since 1992, there have been six earlier instances of prolonged losing streaks. The longest were eight weeks in 1993 and nine weeks in 2001.

Historically, the end of such losing streaks was followed by an average Nifty return of around 11% over one month, 12% over three months, 14% over six months and 39% over 12 months. One-month and 12-month returns were positive in all six instances.

The median 12-month return was around 23%, Shah said, offering a more balanced reference than the average, which was boosted by exceptional gains of 91% and 81% after the 1993 and 2020 episodes.

But history also shows why investors should not treat the first rebound as confirmation of a durable recovery.

After the 2008 losing streak, the Nifty initially gained 9.5% in one month, but subsequently declined around 10% over three months and 22% over six months.

“The end of the losing streak does not necessarily signal the end of the broader downtrend,” Shah said.

Anand James, chief market strategist at Geojit Investments, said the market has entered an oversold zone in the short term.

Only 12% of NSE 500 stocks are trading above their 20-day moving average, while 16% are above their 50-day moving average. Such depressed breadth readings were also seen around the March 2026 low, when the market ended a vicious correction.

The sharp deterioration in market participation is also visible in the number of stocks near their 52-week lows. Around 18% of NSE 500 stocks are now trading close to their 52-week lows.

These conditions can support a short-covering rebound. But the medium- and long-term breadth data is less conclusive.

Around 36.4% of stocks remain above their 200-day moving average and 26.2% are above their 100-day moving average. At the March bottom, those figures were much lower at 15.8% and 13.6%, respectively.

The percentage of stocks near their 52-week lows is also below the 27.2% peak recorded in March. That suggests the market is under stress but has not yet seen full-scale capitulation.

“The market appears deeply oversold in the short term and ripe for a technical rebound, but the longer-term breadth indicators do not yet suggest a major structural bottom,” James said.

Any recovery, he added, is likely to be a relief rally within a broader corrective move.

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The Nifty’s fall below its 200-week moving average has added to the uncertainty. Rupak De, senior technical analyst at LKP Securities, said the index has breached the long-term trend indicator for the first time since the Covid crash.

“This is not a normal breakdown,” De said.

In 2020, the Nifty fell 27% after slipping below the 200-week moving average. In 2008, it declined 38%. But the indicator has also produced false alarms. In 2011, 2013 and 2016, the Nifty broke below the 200-week moving average but reversed after corrections of between 2% and 6%.

“As long as Nifty remains below 22,600, there is a high chance that Nifty might test 20,500,” De said. He added that the decline may not happen in a straight line and periodic bounces could emerge.

The 22,600–22,400 zone is also crucial for Shah. A sustained hold could trigger a pullback, while a decisive breakdown would increase the risk of another leg lower.

FII selling raises short-covering possibility

Foreign investors have sold ₹43,687 crore of Indian equities in just six trading sessions, with outflows accelerating over the past three sessions.

Their index futures long-short ratio has fallen to 8%, close to the lower end of its historical range. Such positioning can create the potential for a sharp short-covering rally if the market stabilises.

The ratio had fallen to 5.98% on September 30, 2025. The Nifty subsequently rallied around 7.5% before reaching its January 2026 high of 26,373.

That history provides a possible template for the current rebound, but the macro backdrop is not benign. Elevated crude prices, disruption around the Strait of Hormuz, rising global yields and persistent FII outflows are keeping pressure on risk appetite.

The Reserve Bank of India is also widely expected to raise interest rates by 25 basis points on October 7. Vijayakumar said the move has largely been discounted and that banks could benefit as higher floating rates improve margins.

For now, the market is caught between two competing forces: oversold conditions that favour a rebound and long-term technical and macro risks that argue against calling a bottom.

The Nifty’s bounce may indeed be the beginning of a recovery. But until the index decisively reclaims the 22,600 zone and market breadth improves beyond short-term indicators, investors may be looking at a relief rally not the end of the correction.