Will BSE Sensex, Nifty50 rally sustain? What historical data on 7-weeks of continuous upside suggests

Will BSE Sensex, Nifty50 rally continue? The recent bullish trend in Indian equities, which has seen seven consecutive weeks of gains, has left market watchers wondering if a reversal is on the horizon. Historical data from the past decade reveals that the market tends to be susceptible to declines after such a winning streak. However, the influx of foreign portfolio flows in recent weeks may deter traders from going all-in on a drop in the benchmark indices, according to market watchers.
According to an ET report, both the BSE Sensex and the NSE Nifty have witnessed a remarkable surge of over 13% since the last week of October, reaching record-breaking levels of over 71,000 and 21,000, respectively, last week.
Tradonomy Research, a Mumbai-based research advisory, conducted a study that revealed only four instances since 2010 where the Nifty rallied for more than seven consecutive weeks. In 2012 and 2021, the Nifty experienced declines of 14.3% and 5.4%, respectively, after seven weeks of gains. In 2018, the index rose for eight weeks before dropping by 10.1%. Similarly, in 2010, the Nifty rose for nine weeks in a row, followed by a decline of 10.7%.Dharan Shah, founder of Tradonomy, noted the current similarity to previous instances, where the rally began in late October and has continued for seven weeks. If the bullish trend reverses, Shah predicts a potential decline of 6.8% for the Nifty, with levels potentially dropping as low as 20,000.
On Friday, both the Nifty and the Sensex reached all-time highs, closing at 21,456.65 and 71,483.75, respectively.

In December so far, the indices have witnessed a jump of nearly 6%, driven by factors such as a decline in US treasury yields, a weakening dollar, a drop in crude prices, and the ruling BJP’s strong performance in recent state elections. These factors have spurred a surge in foreign flows into domestic stocks.
While the US Federal Reserve’s dovish monetary policy stance last week has further accelerated foreign purchases, there are fears that the rapid pace of the market rally in recent weeks may have pushed stocks into an overbought zone. This skepticism is reflected in the 6.5% surge of the Volatility Index (VIX), a fear gauge, on Friday, indicating that traders perceive risks in the market in the near term.
Shrikant Chouhan, Executive Vice President and Head of Equity Research at Kotak Securities, anticipates a correction of 8-10% as the Nifty has surged from 19,000 levels to 21,500 levels in recent sessions.

Some analysts also expect the market euphoria to subside as the holiday season around Christmas and New Year approaches.