Early bird large-cap beats for Q2FY26 and short covering in derivatives, coupled with fresh cash buying by foreign investors recently, have set the stage for the benchmark Nifty to test its record high of last September within the next few weeks, according to analysts. They added that a trade deal between the US and India could help sustain the momentum.
The Nifty closed Monday at 24,853.15—just 1.68% shy of its record high of 26,277.35 hit on 27 September last year. Markets have now recovered 14% from the multi-month low of 21,743.65 on 7 April to Monday’s close. The latest 5% leg of the rally (24,631.3–25,843.15) followed Prime Minister Narendra Modi’s announcement of a fiscal stimulus via GST rate cuts on 15 August.
Rajesh Palviya, research head of Axis Securities, said the markets could hit a fresh high within a couple of weeks. Indian markets will remain closed on Tuesday and Wednesday for Diwali.
Fiscal and monetary push
The fiscal boost, effective 22 September, complemented the Reserve Bank of India’s (RBI’s) 100-basis-point rate cut to 5.5% between February and May to support growth amid global trade tensions and weak corporate earnings. Both measures were intended to spur demand and improve earnings—a trend that appears to be materialising, analysts said.
They added that a new high could narrow India’s outperformance gap with other emerging markets such as China and South Korea. Over the past year through September, MSCI India delivered a negative gross return of 11.09%, while MSCI China and MSCI Korea posted 30.99% and 27% returns, respectively, according to global index provider MSCI.
Strong Q2 numbers revive market mood
Stronger-than-expected large-cap results have buoyed sentiment, prompting foreign portfolio investors (FPIs) to cover shorts and turn selective buyers in the cash market. To be sure, earnings expectations have also been pruned.
For instance, HDFC Bank reported standalone net income of ₹186.41 billion in Q2 versus Bloomberg estimates of ₹173.45 billion. Tata Steel also beat expectations with consolidated net income of ₹20.77 billion against estimates of ₹17.86 billion. Even the battered IT sector hasn’t disappointed as much —HCL Tech posted Q2 consolidated net profit of ₹42.43 billion versus estimates of ₹42.36 billion.
The latest leg of the rally began after the PM’s Independence Day GST rationalisation announcement, which triggered a 5% Nifty surge on hopes of a demand recovery and earnings growth. The government later halved GST slabs to 5% and 18% on 22 September, further lifting market sentiment.
FPI shorts unwind
Consequent to all these developments, foreign portfolio investors—who had net sold ₹27,163 crore in September and ₹39,064 crore and ₹31,988 crore in the preceding two months—have net sold just ₹3,236 crore so far this month, according to NSDL data.
They also cut 55,058 short Nifty and Bank Nifty index futures contracts over two weeks, from 197,578 on 6 October to 142,520 by Friday, per NSE data, helping extend the rally.
“I think we should test the previous high, given the better earnings of large-cap banks, IT and energy companies,” said Sriram Velayudhan, senior VP, IIFL Capital Services. “This could result in a boost to FPI cash market buying, especially in large caps after months. Should a US-India trade deal materialise next month, we could sustain at new highs.”
Echoing this view, Rohit Srivastava noted that FPIs have trimmed their index shorts from the second-highest level of 197,578 contracts on 6 October to 142,520 by Friday. He expects FPI buying in cash and short covering on index futures to drive the Nifty to 28,000–29,000 by year-end.
Domestic institutional investors (DIIs) have been at the forefront of the rally since April’s low, pumping in a net ₹6 trillion this fiscal, compared with FPI selling of ₹80,125 crore.
