Stock market hit fresh lifetime highs: What’s driving the rally & is it sustainable? Explained

Nifty50 and BSE Sensex, the Indian equity benchmarks, are finally rallying - and how! Both the 50-shares and 30-shares indices hit new lifetime highs on Thursday on the back of a strong rally in recent weeks. Foreign Institutional Investors (FIIs) are back on Dalal Street and global brokerages have upgraded their targets for Sensex and Nifty in the coming year 2026. FIIs bought shares worth Rs 4,778 crore on November 26, whilst domestic institutional investors contributed Rs 6,247 crore in the same trading period.After hitting new peaks in September-end last year, the market saw a sharp correction in the last quarter of 2024. 2025 has been a turbulent year for the stock market - especially driven by global trade war uncertainty unleashed by US President Donald Trump’s reciprocal tariff policies. For the most part the stock market has struggled to regain levels it hit in September 2024, and it is now 14 months later that Nifty50 and Sensex have gone past their lifetime highs.Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited notes that this year India has been underperforming most markets.”The underperformance has been mainly due to the poor earnings growth in FY25, elevated valuations and sustained FII selling. Now these issues are getting addressed: earnings growth is improving, valuations have turned reasonable and FIIs have stopped sustained selling and turned buyers in some days,” he tells TOI.Fundamentally, India remains a strong growth story. Despite the 50% US tariffs imposed since August, India is forecast to remain the fastest growing major economy in the world. There is renewed optimism about the Indian stock markets. Morgan Stanley, Macquarie, JP Morgan, Goldman Sachs are betting on a good earnings forecast for the market to rally in 2026. The raised forecasts by major global banks and brokerages have ignited hopes of a sustained bull run in the market.JPMorgan has raised its Nifty50 projection to 30,000 by the close of 2026 - it sees MSCI India earnings increase of 13 percent in 2026 and 14 percent in 2027. "With supportive fiscal and monetary policies, recovering domestic demand and broad-based sectoral growth, corporate earnings are set to rebound," the bank has said.Earlier this month, Morgan Stanley analyst Ridham Desai predicted that Sensex may cross the 1 lakh mark to hit 107,000 by December 2026 in optimistic conditions. HSBC has upgraded India's status to overweight.So what is driving the current stock market rally, and more importantly, is it sustainable?Why are Sensex and Nifty rallying strongly?Experts are of the view that the stock market rally is driven by multiple factors: there are hopes of an India-US trade deal soon, the low inflation numbers have increased the likelihood of an RBI rate cut in the December review, US economic data suggests that the Federal Reserve may also ease monetary policy further, and strong earnings growth in the second quarter have boosted confidence. Add to that the prospects of private sector capex revival, led by a demand surge due to GST rate cuts, is also fueling the stock market rally.window.addEventListener("message",function(a){if(void 0!==a.data["datawrapper-height"]){var e=document.querySelectorAll("iframe");for(var t in a.data["datawrapper-height"])for(var r,i=0;r=e[i];i++)if(r.contentWindow===a.source){var d=a.data["datawrapper-height"][t]+"px";r.style.height=d}}});Sneha Poddar, VP-Research, Wealth Management, Motilal Oswal Financial Services Ltd explains that Indian equity markets are rallying strongly on optimism around a US–India trade deal, hopes of rate cut by both US Fed and RBI in December policy, renewed foreign inflows and healthy Q2 FY26 earnings delivery. Thomas V Abraham, Research Analyst, Mirae Asset ShareKhan concurs that the stock market rally is largely driven by better-than-expected earnings growth of India Inc in the second quarter of this financial year.“Indian market rallying can be attributed to better than expected Q2 earnings, easing global concerns, and improved investor sentiment. FIIs have turned net buyers amidst positive global cues. Optimism around a potential US-India trade deal has also enhanced foreign investment prospects,” he tells TOI.“While falling crude oil prices have improved profitability for energy and refining companies, festive demand is supporting consumption and economic activity. Banks and financial institutions have rallied on account of strong balance sheets, policy reforms, easing inflation, and better outlook for H2FY26. Additionally, Indian IT stocks have rallied, partly on account of better outlook for project inflow. The Nifty and Sensex have been nearing or hitting record highs supported by these factors, across sectors,” he explains. While both Nifty50 and BSE Sensex have touched new lifetime highs, the rally in the broader index has been more prominent. Dr. V K Vijayakumar explains that the stocks of Sensex and Nifty and their weights are different. This explains the difference in the rally.window.addEventListener("message",function(a){if(void 0!==a.data["datawrapper-height"]){var e=document.querySelectorAll("iframe");for(var t in a.data["datawrapper-height"])for(var r,i=0;r=e[i];i++)if(r.contentWindow===a.source){var d=a.data["datawrapper-height"][t]+"px";r.style.height=d}}});Nifty 50 comprises 50 of the top companies across 24 sectors, thereby bringing about a wider representation of the Indian equity market. Sensex on the other hand, consists of only the top 30 companies largely from established sectors.“Nifty is outpacing Sensex because Nifty50 has a different sectoral mix than the Sensex-30. Some of the sectors that are driving investor enthusiasm right now like financials, rate-sensitive growth sectors are more heavily represented in Nifty,” Sneha Poddar tells TOI.Thomas V Abraham says that the outperformance of Nifty 50 has recently been led by IT, banking, and financial services sectors — all heavily represented in Nifty. “There has been a broad based rally across sectors in recent days, and Nifty has been able to garner the benefits of rallies across these sectors. Sensex is more dominated by banks (BFSI), Industrials, a few mega-caps like HDFC Bank, Reliance, TCS,” he adds.Sensex, Nifty rally: Will it sustain? What’s the outlook?Indian equity benchmarks have seen a consistent rally after a gap. And, after a spree of relentless exodus of FIIs from the stock market, the biggest concern in the minds of the investors is: is the current stock market rally sustainable? Analysts are cautiously optimistic, though there are fears of valuations being expensive.Sneha Poddar of MOFSL believes that the sustainability of this stock market rally will depend upon FII inflows and whether the corporate earnings pick up pace in subsequent quarters as expected, especially post various monetary and policy reforms.“Going ahead, picking up in capex both public and private will be critical for the markets. Overall consumer demand is reviving but capex revival will hold the key for overall earnings momentum pick up. In addition, development around the US- India trade deal front would determine the market sentiments in the near term,” she added.Dr. V K Vijayakumar cautions that while the prospects for improved earnings growth supported by sustained flow of domestic funds is supporting the rally in the market, there is no scope for a sustained rally in the market since valuations are not cheap.Thomas V Abraham of Mirae Asset ShareKhan is optimistic about positive triggers for the stock market in the coming weeks and sees a continued upside. “Increased tariffs have impacted exports and widened the current account deficit. However, low inflation provides the Reserve Bank of India comfort for a potential rate cut in December. A rate cut would likely boost domestic liquidity, lower borrowing costs for corporates, and improve market sentiment. This, coupled with potential tariff resolutions and a likely pre-budget rally, the Nifty 50 is positioned for continued upside,” he says.(Disclaimer: Recommendations and views on the stock market, other asset classes or personal finance management tips given by experts are their own. These opinions do not represent the views of The Times of India)Get an chance to win ₹5000 Amazon Voucher by taking part in India's Biggest Habit Index! Take the survey here