The return of FIIs and easing oil prices sparked a skyrocketing rally in the Indian stock market this month, pushing the benchmark indices to levels not seen since the Middle East war ensued earlier this year, but analysts say it may take a few more months for them to hit fresh lifetime highs.
Sensex this week touched 82,000, marking the first time since last February before US-Israel’s joint air strikes killed Iran’s Supreme Leader Ayatollah Ali Khamenei, beginning a conflict that sparked a sharp surge in oil prices and spooked investors, continuing till date. Nifty traded above 25,350 before the infamous March selloff began. The index has now traced its way back above the level.
Also read |Sensex erases all Middle East war losses but is it too soon to forget the Hormuz factor?
How far are Sensex, Nifty from their lifetime highs?
Despite the recent gains, the benchmark indices are sharply down from their respective lifetime lows. Sensex had hit a lifetime high of 86,159 on December 1 last year, and Nifty had hit an all-time high of 26,373 early in January this year. The benchmark indices are around 5% away from their respective record peaks despite the recent rally.
Sensex has recovered over 11,000 from its recent low to hover near 81,900, which leaves 86,000 about 5% away. Vaqarjaved Khan, Senior Fundamental analyst at Angel One, feels that this rally has fundamental support. Earnings visibility is improving, banking, autos and consumption are showing healthier demand, and softer input costs are helping margins, he said, adding that steady SIP flows from domestic investors also give the market a cushion even when foreign money turns cautious.
Sensex’s recovery of over 11,000 points from its October low reflects a sharp improvement in market sentiment, supported by renewed foreign institutional inflows, easing crude oil prices and encouraging corporate earnings, said Vinit Bolinjkar, Head of Research, Ventura.
Why caution is warranted after such sharp spike
However, after such a steep rally, some consolidation and profit booking cannot be ruled out, the analyst said. While the broader market outlook remains positive, geopolitical uncertainties, inflationary pressures and fluctuations in foreign capital flows could create intermittent volatility, according to Bolinjkar. “We expect the next leg of the rally to be increasingly driven by earnings growth rather than liquidity alone.”“I would not call valuations comfortable after such a sharp run. Earnings need to catch up with prices, and that is what I will be watching in the coming quarters. Crude oil, global cues and foreign inflows will decide how quickly we move,” Khan from Angel One said.
The current rally has been driven by falling crude levels, the return of foreign money and better-than-expected earnings. All three need to hold, and none of them is guaranteed while the US-Iran situation remains unresolved and the Fed stays hawkish, said Tanvi Kanchan, Associate Director at Anand Rathi Shares & Stock Brokers. She noted that the market is already showing signs of fatigue near these levels as the Sensex has slipped back from its November 11 high and has been trading in a narrow range on Thursday.
When could Sensex, Nifty soar back to lifetime highs?
A fresh lifetime high, which is sustainable, is a realistic possibility over the next few months rather than the next few sessions, provided crude stays contained and foreign flows remain positive, one can expect short term consolidation before the breakout, according to Kanchan from Anand Rathi.
Khan from Angel One has a base case that the Sensex can cross 86,000 and set a fresh lifetime high in roughly three to six months, provided Q3 FY27 earnings hold up and there is no external shock. “I would advise investors not to chase the rally and to accumulate quality large caps on dips.”
Ventura analyst Vinit Bolinjkar believes that Sensex could test the 86,000–86,200 zone over the next two to three months, provided foreign inflows remain strong, crude prices stay contained and corporate earnings sustain their momentum. “A decisive breakout above the immediate resistance of 82,500 could pave the way towards 84,000 and eventually 86,000,” he said.
Sudeep Shah, Head of Technical and Derivatives Research at SBI Securities, said if the market succeeds in holding on to its bullish momentum, Sensex could potentially revisit its lifetime highs over the next 3-6 weeks. “However, investors should not expect the rally to be linear. After such a sharp recovery, intermittent profit-booking and consolidation would be healthy and could provide a stronger base for the next leg of the uptrend,” according to Shah.
Ajit Mishra, SVP of Research at Religare Broking, meanwhile believe Sensex is well positioned to reclaim the 86,000 mark and potentially surpass its previous lifetime high over the next 3-6 months. However, the next leg of the rally will need earnings delivery rather than just valuation re-rating, he said, adding that investors should use intermittent corrections to accumulate fundamentally strong businesses with sustainable growth prospects.
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