The stock market is rallying due to solid Q2 earnings and a drop in crude oil prices. Domestic liquidity has provided support to the market, but the lack of foreign fund inflows due to high US bond yields has been a hindrance, Menon said.

Fortunately, interest rates in the US have peaked, and the dollar index is declining, which is expected to attract foreign institutional investors (FIIs) into the Indian equity market, he added.

The consistent decline in the Consumer Price Index (CPI) over the past four months has also sent out a positive signal to the market. Despite the strong fundamentals, there may be some volatility in the market leading up to the state election results which are due on December 3, Menon said.

Rupak De, Senior Technical Analyst at LKP Securities, said the BSE Midcap and BSE Smallcap indices experienced a sustained rally as Sensex broke out of its consolidation range and BSE Bankex recovered from its losses.

The relentless ascent in the midcap and smallcap segments propelled the respective indices into uncharted territory, where target prices would be determined using Fibonacci extension.

The sentiment remains bullish as the recent breakout in Sensex is bolstering the broader market, which appeared somewhat fragile or risky a few days ago. Going forward, the uptrend is likely to continue in the mid and smallcap space, with periodic dips providing opportunities to buy in, he said.