SENSEX, NIFTY50 rally up to 14% in a month: Are Indian markets back in bull mode?

After months of subdued performance, the Indian equity market began rebound from its lows and staged a strong rally starting from the end of October. The recovery was supported by the return of foreign investors, easing crude oil prices and lowering US bond yields.

One of the factors that led to the rally was the return of foreign investors to the Indian market. Despite the highly volatile crude oil prices, elevated risk sentiment due to the escalations in the US-Iran conflict, and a bloodbath in the global equity markets due to the AI trade reversal, the foreign portfolio investors (FPIs) seem to like Indian equities, offering them some stability and gains.

How FPI and crude oil prices supported market

According to a note from Jefferies, a potential reversal in the AI trade, equity tax relief, resilient domestic macroeconomic conditions, reasonable large-cap valuations and light positioning could support FPI inflows. The analysts believe large-cap stocks could be the primary beneficiaries of a revival in FPI flows, given their relatively reasonable valuations, higher liquidity and greater FPI ownership.

Meanwhile, global equity research firm Bernstein hiked its NIFTY50 target for December 2026 to 26,100 from the earlier 25,000. It added that easing Iran tensions, softer crude prices, lower bond yields and improving flows support a near-term market rally. Further, the analysts also noted that strong earnings momentum is providing temporary support to the market.

However, weak demand and limited earnings upgrades could affect the sustainability of the rally, while expensive valuations, fiscal constraints and AI-related risks pose challenges to the medium-term outlook.

“The shift in sentiment followed a sharp unwinding of crude oil’s geopolitical risk premium after the US midterm outcome fuelled expectations of a negotiated de-escalation with Iran. A sustained decline in oil prices could ease cost pressures for crude-sensitive sectors and reduce the macroeconomic uncertainty that has weighed on foreign investor participation in Indian equities,” said Hariselvan Radhakrishnan, Founder & CEO of HST Wealth, a SEBI-registered Research Analyst firm.

Citi raises NIFTY50 target

The report further added that Citi ‌sees scope ⁠for a broader allocation shift as AI spending becomes more measured and estimates that a 100-basis-point increase in India’s active weight among EM fund managers could trigger roughly $12 billion in inflows.

Another global brokerage, HSBC said resilient earnings, strong bank credit growth and policy measures to ​support the Indian rupee have made the market “more compelling” after its ​underperformance versus emerging market ⁠peers this year.