A pick-up in earnings, optimism around a potential US-India trade pact and a supportive macro backdrop have sparked a powerful upswing in Indian equities since early October, pushing the headline indices back towards their late-September 2024 record highs. Market experts expect the momentum to persist, with some projecting that the BSE Sensex could scale the six‑figure mark by the end of next year if the current tailwinds hold.
“Earnings growth outlook continues to remain healthy for 2HFY26 and FY27E and hence we believe that, we can see Sensex in the band of 95,000-1,00,000 by December 2026,” said Sunny Agrawal, Head - Fundamental Research at SBI Securities.
When ask if the Sensex can sprint to 90,000 mark by December 2025, Agrawal stated that such a sharp up move is subject to culmination of multiple win-win scenarios like (a) India US trade deal on favourable terms, (b) reduction in repo rates by RBI in the ensuing MPC meet, (c) US Fed changing its stance from hawkish to dovish and (d) no negative news flow on the geo-political front.
The Sensex has advanced from 80,000 in early October to over 85,000 in less than two months while the broader Nifty50 has rallied from 24,600 to above 26,000 during the period.
The current rally, according to Agrawal is driven by heavyweight BFSI sector on the back of (a) likely stable NIMs during 3QFY26 (subject to no further aggressive rate cut by RBI) with scope of expansion beginning 4QFY26, (b) robust asset quality, (c) strong interest from foreign players in the domestic banking industry, (d) likely buzz of consolidation in public sector banks coupled with increase in FPI limits, (e) healthy credit growth outlook for next 2 years and (f) reasonable valuations.
Vaqarjaved Khan, Senior Fundamental Analyst at Angel One believes that Sensex can cross 93,000 by the end of the financial year 2026 as earnings per share (EPS) growth will be in double digits but on the lower end. “Good earnings seasons for the heavyweights have been one of the factors behind recent rally for the market index. Meanwhile, domestic flows through DIIs continue to remain strong along with stable macros for India. With earnings recovery poised for H2 FY26 Sensex can scale newer highs,” added Khan.
Global brokerage Morgan Stanley (MS) expects Sensex to hit the 1,07,000 mark by December 2026 in the case of a bull case scenario. For this to happen, MS assumes oil below $65, a calmer global trade environment, and stronger results from reflationary policies. Under this outcome, the firm expects earnings to grow at nearly 19% a year between FY25 and FY28.
PL Asset Management expects markets to remain resilient yet range-bound as investors assess Q2FY26 earnings and track global interest rate expectations. However, the medium-term outlook appears decisively constructive, added PL. It stated that after two years of heavy foreign outflows amounting to $30 billion, valuations have normalised meaningfully, creating an attractive re-entry point for global investors.
Financials and Auto pack at the forefront
On the back of healthy credit growth, robust balance sheet and favourable valuations, most analysts remain bullish on the banking sector. Nifty Bank has been consistently marking fresh all-time highs, supported by broad-based strength across private and public sector banks.
Agrawal of SBI Securities also sees opportunities in the NBFC and Auto & Auto Ancillary. “Long runway for growth coupled with first beneficiary of the interest rate downcycle will likely benefit NBFCs…Post GST rationalisation, the Auto & Auto Ancillary sector is well placed to drive healthy sales volume growth over next 3-5 years; Premiumisation, increased focus on safety and adherence to govt regulation will drive value growth,” he stated.
Other pockets he sees an opportunity in are the Capital Market, Oil Marketing Opportunities and Hotels. According to Khan of Angel One, sectors such as financials, consumer, industrials and green energy are expected to do well in the coming times on account of structural tailwinds such as high credit demand, lower rates, tax cuts, a gradual pickup in private capex and policy support for them.
What can break the rally?
While the equities are firing on all cylinders, the rally is anything but broad-based. The broader midcap and smallcap indices continue to trade well below their peak level and even in the frontline indices, the surge is led by select stocks. Since the upswing began in early October, only six large caps - Reliance Industries, HDFC Bank, Bharti Airtel, SBI, L&T and Axis Bank - together account for close to 60% of the Nifty’s 6% rally. Data also shows that the BSE Advance Decline ratio for the month of November 25 is at 0.88, the worst in the last 9 months.
Agrawal said that investors should closely monitor global geopolitical and trade developments, as any significant shift in business dynamics will impact all the asset classes, including equities. Recently, we have seen Japan’s bond yield scaling highs of 1.71% from near zero a few years ago, which can cap the global cheaper funding source and thereby have huge impact on popular Japanese carry trades, he stated.
“Increase in lack of trust on global trade currency Dollar can also led to formation of new trade blocs or currency blocs and thereby impact the trade dynamics between nations. Delay in unconditional India US trade deal can impact export facing businesses and may hurt Indian rupee and CAD numbers,” added Agrawal.