The Indian stock market concluded Samvat 2081 with modest gains despite major headwinds from geopolitical tensions, US tariffs, weak earnings, and foreign capital outflow.
The Nifty 50 rose by 6 per cent from Diwali 2024 to Diwali 2025, with shares of Bajaj Finance (up 56 per cent), Maruti Suzuki (up 48 per cent), IndiGo (up 46 per cent), BEL (up 44 per cent), and Eicher Motors (up 42 per cent) clocking solid gains.
The domestic market could be on the cusp of a trend reversal, as earnings of Indian corporates are expected to see healthy growth in the remaining part of the financial year, driven by increased consumption following income tax relief and GST reforms, lower inflation due to a correction in crude oil prices, a healthy monsoon, and rate cuts from the US Fed and the RBI.
Indian stock market: Poised for a rebound?
India’s healthy growth-inflation dynamics, expectations of an India-US trade deal, and earnings growth may drive the Indian stock market to record highs in the coming months.
“Second half, especially Q4, is likely to be the beginning of better performance from corporate India, and the new Samvat looks very promising for the markets going ahead. We would advise to use this slow period to gradually build positions to benefit from better earnings growth over the next 12 months,” said Chandraprakash Padiyar, Senior Fund Manager, Tata Asset Management.
US tariffs, which have emerged as a key concern for the Indian stock market, are also likely to come down as India and the US remain actively engaged in trade negotiations. A favourable trade deal between the two countries will eliminate a key risk for the market, triggering the bull trend in domestic equities.
“We expect a mutually acceptable resolution to US trade negotiations would eliminate policy uncertainty and restore FII confidence. Stronger Q2 earnings would signal economic recovery and drive stock-specific rallies, while a robust monsoon would boost rural consumption across FMCG, auto, and consumer durables sectors,” said Devarsh Vakil, the head of Prime Research at HDFC Securities.
Vakil underscored that global interest rate easing would make India more attractive to yield-seeking investors, potentially triggering renewed capital inflows.
He said that with H2FY26 expected to drive earnings recovery and improved corporate performance likely crucial for attracting FII flows back to India, markets are likely to perform.
Aakash K Hindocha, Deputy Vice President – WM Research at Nuvama Professional Clients Group for your reference, expects the Nifty 50 to be near 28,000 to 29,000 till next Diwali.
“While short-term volatility from geopolitical tensions and commodity swings cannot be ruled out, India’s domestic growth momentum, policy continuity, and earnings strength anchor a constructive medium-term outlook,” said Hindocha.
Key risks that can spoil the party
While the market outlook is positive, there are some key risks that investors cannot overlook.
According to G. Chokkalingam, founder and head of research at Equinomics Research Private Limited, the domestic market has a liquidity risk.
He believes any possible continued boom in the primary market over the next three to six months may sap liquidity from the secondary market.
Moreover, any potential further aggressive US tariff against India remains a key risk, especially any disruption to IT service exports to the US due to the imposition of a tax on imports.
“Except for tariff war, we can’t visualise any major risk factor for the domestic markets within, as domestic demand drivers are quite strong,” said Chokkalingam.
A delayed earnings recovery will puncture the sentiment, creating a growth-valuation mismatch. This could also mean FIIs will remain in a selling mode in the Indian stock market.
“If the expected earnings recovery in FY26 does not happen, it will be a major negative for the market,” said VK Vijayakumar, Chief Investment Strategist at Geojit Investments.
“FIIs continuing to sell big, like in 2024 and so far in 2025, the ongoing Russia-Ukraine war aggravating, causing major geopolitical tensions and presently unforeseen consequences are additional key risks,” said Vijayakumar.
“A big risk, though low probability event now, is the new investors getting disillusioned with poor returns and selling and getting out of the market, particularly if some trigger causes a sharp market correction. Worse still will be a big reduction in SIP inflows,” said Vijayakumar.
Read all market-related news
Read more stories by
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.