The Indian stock market is teeming with positivity. The benchmark Sensex has gained about 2,000 points and has been in the green for six consecutive sessions, its longest daily winning streak since late April this year.
On Thursday, August 21, the Sensex rose nearly 400 points, or about half a per cent, during the session. The index is now about 5 per cent below its all-time high of 85,978.25, hit on September 27 last year. The Nifty’s record high is 26,277.35, which it reached on the same day. The 50-share index is also down 5 per cent from its peak.
Why is the Indian stock market rising?
The Indian stock market is enjoying significant tailwinds of proposed GST reforms, S&P Global’s upgrade of India and easing geopolitical concerns.
Prime Minister Narendra Modi announced the next-generation GST reforms in his Independence Day speech at the Red Fort. The move is expected to simplify rates, reduce prices of several consumer goods and boost consumption.
Meanwhile, on August 14, ratings agency S&P Global upgraded India’s sovereign rating to BBB from BBB-, while maintaining the economic outlook as “stable.” The move is seen as a long-term positive for the Indian economy and could open the door for fresh global funds.
On the geopolitical front, signs are emerging that the Russia-Ukraine war could end soon. Russian President Vladimir Putin and Ukrainian President Volodymyr Zelensky are to hold direct talks to end the conflict between the two countries.
Market sentiment is also underpinned by expectations of a rate cut by the US Federal Reserve in September. Hopes of earnings revival are another factor behind the market’s resilience.
Sensex, Nifty 50: En route to record highs?
While the domestic market is on a winning streak due to a confluence of tailwinds, it is not free from major headwinds.
The tariff risk is looming, with Trump’s August 27 deadline fast approaching. So far, the White House has not indicated that the secondary tariffs will be removed.
The Indian government said almost $50 billion worth of Indian goods will be affected once the 50 per cent US tariff comes into effect on 27 August.
“There is no scope for a sustained rally since the August 27th deadline for the 25 per cent secondary tariff on India is fast approaching, and the news coming from the Trump administration is not positive,” said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.
Foreign portfolio investors (FPIs) continue to sell Indian equities. After offloading stocks worth ₹47,667 crore in July, FPIs have pulled out ₹25,375 crore from the cash segment in August so far.
Due to US tariffs and foreign investor outflows, the Indian stock market may deliver modest gains this year.
According to a Reuters poll of 20 equity analysts, the Nifty 50 is forecast to rise about 4 per cent to 25,834 by the end of this year, before reaching 26,500 by mid-2026 and 27,950 by end-2026.
Experts also warn of elevated valuations of the market.
“Investors have to be vigilant about valuations in this market. Despite the many headwinds, valuations are high. Out of the BSE 500 stocks, 215 are trading at PEs above 50,” said Vijayakumar.
“Large-cap valuations, though high, are justified given India’s long-term growth potential. Many midcaps have the support of strong growth. But small caps are excessively valued and, therefore, risky,” Vijayakumar added.
Experts believe it is too early to believe that the market will soon hit a record high.
“It is still early to expect record highs. However, the market has been in a consolidation phase for over a month and a half and was oversold. We are now witnessing some normalisation amid expectations that the secondary 25 per cent US tariffs may not be imposed. Despite this, many export-oriented sectors may continue to experience volatility, as India has not yet secured any trade deal,” Pankaj Pandey, the head of research at ICICI Securities, said.
Regarding valuations, Pandey said one needs to watch out for the inclusion and exclusion of index components.
“Typically, most commodity-oriented or lower-priced stocks have moved out of the index, while several new-age or consumption-oriented stocks have been added. This is why benchmark valuations appear high. The market may hit a record high around Diwali,” said Pandey.