Even though India’s growth-inflation dynamics remain favourable, the Indian stock market is struggling to reach a fresh high.
The Sensex and the Nifty 50 scaled their 52-week highs of 85,290 and 26,104, respectively, on October 23, fanning hopes that they were en route to scale fresh peaks within the next few days, supported by stable Q2 earnings and hopes of an India-US trade deal.
However, what happened next was quite the opposite of expectations. The domestic market witnessed profit booking across segments, and the Sensex and the Nifty 50 are set to extend their losing run to a second consecutive week.
Lack of triggers?
The domestic market is torn between tailwinds and headwinds. In-line earnings, cooling down valuations, and India’s healthy macro outlook due to lower crude oil prices and a healthy monsoon are key positives for the market. On the other hand, global uncertainties and US tariffs remain key challenges.
The Q2 results of India Inc. have been stable. In fact, some pockets, such as oil marketing companies and metals, have exceeded expectations.
“Aggregate earnings are ahead of our estimates, with metals and mining and OMCs (oil marketing companies) driving the beat in the Kotak Institutional Equities (KIE) universe earnings print,” said in a report.
On the macro front, inflation could remain low this year, and GDP growth may remain resilient despite global turmoil.
The RBI, in its last policy meeting on October 1, revised forecast downward to 2.6 per cent for FY26 from the earlier projected 3.1 per cent. On the other hand, the central bank has raised India’s FY26 GDP growth estimates to 6.8 per cent from the previously projected 6.5 per cent.
According to consultancy firm , India’s economy is likely to grow 6.7-6.9 per cent this financial year, driven by buoyant domestic demand, steady policy reforms, and a revival in private investment.
Valuations, too, especially of large-caps, have come down to comfortable levels.
According to Nandish Shah, AVP– PCG Research and Advisory, (fundamental) Wealth Management, Motilal Oswal Financial Services, the Nifty 50 is trading at 21.4 times, marginally above its long-period average of 20.8 times, and any evidence of earnings growth pickup should help valuations expand.
Despite all these significant tailwinds, why is the market struggling to hit fresh highs?
The spoilers
Foreign institutional investors (FIIs) have been relentlessly selling Indian stocks since July this year. Data show they have cumulatively sold Indian equities worth about ₹1.4 lakh crore in the cash segment since July till November 6. This is the main reason why the market is not able to hold gains.
“What we are seeing is a clear case of sector rotation. FII flows are still patchy, which is why the earlier rally—driven largely by private sector banks, autos, and IT—has now shifted to other pockets,” said Pankaj Pandey, the head of research at ICICI Securities.
Additionally, the persisting uncertainty over an India-US trade deal remains a key overhang. Domestically, the Bihar Assembly elections have added to the cautious sentiment.
“There’s some anxiety around the Bihar elections, which has created uncertainty. The lack of progress on the India–US trade deal, despite earlier expectations, has added to the market’s nervousness. It’s really a combination of these factors that’s leading to the current volatility,” said Pandey.
A sustained uptrend in the market will depend on several factors, both domestic and global.
Pandey said for FIIs to make a meaningful comeback, the India-US trade deal needs to materialise, which remains uncertain for now.
Apart from the trade deal, most domestic parameters — including macro indicators and corporate earnings — are broadly in line with expectations. If they improve further, it will be a significant boost for market sentiment.
Shah of Motilal Oswal believes the Indian markets are in a healthy state versus last year, and the platform is set for Indian equities to mean-revert and post an uptick going forward.
“We believe that the cavalry of measures by the government will help to reset the trajectory of corporate earnings as domestic reforms are expected to continue, while any resolution of the tariff stalemate will be a key external catalyst,” he said.
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