Indian stock markets are gradually showing signs of recovery, buoyed by a combination of favourable macroeconomic factors: a weakening US dollar and falling crude oil prices.
Out of 13 major sectoral indices, 12 closed in the green. The Nifty 50 ended the session with a 0.93% gain, closing at 22,544 points, while the Sensex finished at 74,340, marking a 0.83% increase from Wednesday’s close. Broader market indices also saw positive movements, with the Nifty Midcap 100 rising 0.37% to 49,348 and the Nifty Smallcap 100 surging 1.32% to 15,400.
The past few days have seen a noticeable rally, with investor sentiment improving as the dollar index declines and oil prices dip below $70 per barrel, according to ET report.
The Sensex has gained nearly 1,000 points over the last two days, and the broader market, which had fallen into bear territory, is rebounding even more sharply. The BSE Smallcap index has surged 5.6% in just three days.
The US dollar index has dropped to 104.2, relinquishing much of its gains since September 2024. Meanwhile, the Indian rupee has strengthened, stoking optimism that foreign institutional investor (FII) selling might soon reverse. Brent crude has fallen sharply by 6.5% over the past four sessions, reaching its lowest level since December 2021, which benefits India, a major oil importer, by lowering energy costs.
Declining crude prices
The decline in Brent crude below $70 is another positive development for India, and analysts expect markets to price in this favorable trend. They noted that while emerging markets (EMs) have seen foreign outflows since Donald Trump’s election in 2016, this trend might soon reverse.
“The sell-off across EMs since Oct’24 (post-Trump victory) was a top-down trade as money was moving back to the US. This has already halted across all large EMs in the past 2/3 weeks. India flows are still weak, but we could see that pressure also coming down in the following weeks.” Elara Securities noted.
In the midst of global uncertainties, India seems to have strong momentum. “Markets are entering a phase of renewed traction, driven by improving GDP growth, earnings recovery, and better liquidity conditions. While global trade remains volatile—with Trump’s tariff war reshaping economic dynamics—India’s resilience stands out,” Manish Goel, Founder and MD of Equentis Wealth Advisory Services told ET.
Goel anticipates earnings growth of 15% in FY26 and 14% in FY27, with the Nifty trading at its most reasonable valuations in three years at a P/E ratio of 19.6x. He sees the index reaching the 25,000–26,000 range in the next two to three quarters.
Uncertainty not over
However, caution remains, especially with global uncertainty still hanging over the markets. Pankaj Pandey, Head of Research at ICICIdirect.com, warns that while domestic factors are supportive, global uncertainty persists.
“Historically, since 2006, we have seen that the average correction in midcap has been about 27% lasting for about seven months. So, I will not rule out some bit of volatility,” he said, advising investors to maintain a measured cash position at current levels.
For now, though, markets are benefiting from favourable macro trends. With the US dollar weakening, crude oil prices falling, and expectations of easier US monetary policy, Indian equities may be on the brink of a comeback. If these trends continue, the FII outflows of recent months could reverse, potentially setting the stage for the next phase of the market rally.
Disclaimer: The opinions, analyses and recommendations expressed herein are those of brokerage and do not reflect the views of The Times of India. Always consult with a qualified investment advisor or financial planner before making any investment decisions.
