Fourteen months after a big selloff attributed to a global shift in capital flows, Indian largecap stock indices regained the limelight on Thursday. The wait had begun to seem endless, but the BSE Sensex finally surpassed last year’s peak to touch a fresh intraday all-time high. This index leapt above the 86,000 mark for the first time, though it closed the trading day lower.
Investor nails have been bitten all through these months as indices seesawed, but rolling-average trends—shorn of spikes and dips—of the Sensex and Nifty have shown an incline since the start of 2025-26. While the latest upswing had analysts talking of a possible return of foreign inflows, the market’s strength has had much to do with domestic investors pumping in money, especially via mutual funds at the retail level.
The relative influence of global investor calls has declined. This form of ‘atmanirbharta,’ or self-reliance, is good for us. But only to the extent it reflects an optimism that real business prospects can explain.
Has the outlook for equities brightened? Consider the impact of policy on India’s economy.
By and large, our market uptrend has tracked the Centre’s consumption stimulus: while the budget for 2025-26 brought income tax relief, by mid-year, we had seen a GST reset aimed at spurring consumer spending.
Though this stock uprun was punctuated by a few bouts of volatility set off by US trade adversity, a recent reform thrust has given the market a positive vibe. Long-pending labour codes were notified, various initiatives launched and India’s export edge given a relook—some policy distortions that inflate factory input costs, for example, face the axe.
Meanwhile, the central bank acted to reduce interest rates, even as inflation fell, thus easing credit for businesses and consumers while also making stock investments more attractive than bank savings for households. With sundry indicators looking up, the odds now look better of this year’s GDP growth not just beating last year’s 6.5%, but going above 7%. Sure, overseas investors do not seem enthused, but the optimist’s case has two expectations that may lure them back.
One, a rate cut by the US Fed that could plausibly tilt flows back from American assets to Indian; and two, a trade deal with Washington that relieves anxiety not just over export growth, but also Wall Street’s view of India as a worthy country to invest in.
Of course, some of those positive cues may not work out quite as investors expect.
Notably, an overhang of uncertainty over India’s prospects of export-led growth over the years ahead is yet to dissipate. Also, a risk looms in the shudders that an American AI-stock bust could send around the globe.
All we can count on are the basics of value generation. Although corporate earnings have been catching up with market prices, value investors still fret about a significant clutch of overpriced shares. Indeed, patchy progress on profits may explain why the market recovery has not been broad-based. Prices of over half the BSE 500 stocks remain weak and 100-plus have lost more than a fifth of their value over the past year. Stock upruns require bullish investors putting in enough money to outweigh bearish ones.
While the former have been active, hard data on business results is yet to lend their calculus much support. But then, broad profit expansion might materialize in a few quarters, proving them right. If it does, the Sensex and Nifty could keep up their rolling- average path. We could even call it an orderly rise. But for that, we need results to roll in.
