Nifty outlook: The Nifty 50 could scale fresh record highs over the next four to five months as falling US bond yields, a weaker dollar and renewed global liquidity potentially bring foreign investors back to Indian equities, according to Gaurav Bhandari, CEO of Monarch Networth Capital (MNCL).
Bhandari expects Nifty will hit new all-time highs of 26,000-26,500 within the next 4-5 months, arguing that a possible reversal in global macroeconomic conditions could create a favourable environment for domestic stocks.
He favours selective buying in quality stocks rather than adopting an overly defensive investment stance.
However, the forecast depends on global yields and currency movements evolving as anticipated, alongside sustained domestic inflows. Any reversal in these conditions could affect the market’s trajectory.
His outlook hinges on three key developments: easing US bond yields, a weakening dollar and capital flowing out of low-risk investments into equities.
The index has been under pressure following gains in crude oil prices, higher bond yields, weak rupee, relentless FII selling as well as escalating geopolitical tensions between US and Iran. It has shed 3% in last 1 month and 5.5% in 3 months. It has declined 14% from its 52-week high of 26,373.20, hit on January 5, 2026.
Falling US bond yields and a weaker dollar could support Nifty
In the note, Bhandari said the current US bond yield levels were unsustainable and could eventually redirect liquidity towards Indian markets. He also highlighted the possibility of foreign institutional investors (FIIs) covering their short positions, potentially adding to upward momentum.
The US 10-year Treasury yield stood at 5.35%, a 24-year high, rising 110 basis points in 2026. The US government’s annual interest payments on debt exceeding $35 trillion had reached nearly $1.8 trillion, surpassing its defence budget.
Meanwhile, the 30-year mortgage rate of 7.03% had weighed on the US housing market. As per the expert, the previous two instances when the 10-year Treasury yield crossed 5.25%, in 2002 and 2007, were followed by declines of 40-60% within 18 months.
“The yield at 5.35% is not a new normal; it is the peak of an extreme that is already breaking the US economy from the inside,” Bhandari said.
He also pointed to the US fiscal deficit of 6-7% and its persistent trade deficit, arguing that the combination could precede further dollar weakness. The Dollar Index had already slipped below 100 once in 2026, and Bhandari expected it to weaken again, potentially towards 95.
A softer dollar could encourage global investors to increase allocations to emerging markets, including India. Bhandari believes Indian equities could benefit from such a shift, drawing on their performance during previous dollar-weakening cycles.
Global liquidity and FII short covering could drive market rally
Another potential catalyst is the $6.3 trillion held in US money market funds. Bhandari expects falling yields to make these instruments less attractive, encouraging investors to move money into riskier assets such as equities. The unwinding of global carry trades could further amplify these flows.
He also flagged substantial FII short positions in Indian equity futures. A change in global sentiment could force investors to close those positions, creating additional buying pressure in the market.
“The potential sequence is falling US yields, dollar weakness, capital rotation from money market funds, FII short covering and continued domestic inflows of around ₹31,000 crore per month,” Bhandari’s note stated.
The report suggested that this combination could support a valuation re-rating, with the market’s valuation multiple potentially expanding from 18 times to 22-24 times.
For investors, the key takeaway is to watch US Treasury yields, the dollar, FII positioning and domestic investment flows for signs that the anticipated rally is gaining momentum.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.