The benchmark index crossed the 26,300 mark in early January 2026 after first hitting an all-time high in late November, driven by strong performances in banking, auto and energy stocks. This time, however, analysts say the rally is being supported by a healthier mix of earnings visibility, domestic demand and improving balance sheets rather than just liquidity.
According to Sourav Choudhary, Managing Director at Raghunath Capital, the current up-move rests on firmer fundamentals than earlier momentum-led phases.
“Unlike past rallies that were largely driven by liquidity and global risk-on sentiment, this one is anchored in earnings growth and macro stability,” Choudhary said.
He pointed out that banks, industrials, manufacturing and capital goods companies are likely to report steady profit growth, supported by government capital expenditure and a gradual formalisation of the economy.
Earnings strength across key sectors has been one of the biggest pillars of support. Financials continue to benefit from improving asset quality and credit growth, while autos and manufacturing have seen stable demand. Infrastructure-linked companies are also reporting strong order books as public spending remains robust.
Another key factor has been the steady flow of domestic money into equities. Monthly SIP investments remain elevated, providing a cushion even when foreign portfolio investor flows turn volatile. Analysts say this has reduced the market’s dependence on overseas liquidity, making corrections shallower.Khushi Mistry, Research Analyst at Bonanza, said the latest rally was backed by a broad-based sectoral move. “Around 15 out of 16 sectors advanced during the recent up-move. Banking, auto and energy led from the front, while domestic buying remained strong,” she said.
Mistry added that supportive macro factors also played a role. RBI’s cumulative 100 basis point rate cuts, income tax relief measures and low inflation have helped boost consumption and purchasing power. Expectations of FY26 earnings growth of nearly 14% have further strengthened sentiment.
Valuations, however, remain a point of debate. Choudhary says that parts of the market are trading above long-term averages, but said premium valuations are being justified where earnings visibility is strong.
“Valuations are not cheap, but markets are increasingly rewarding companies with genuine cash-flow visibility. Stocks priced purely on narratives are unlikely to sustain,” he said.
Not everyone is convinced the rally will be smooth. Abhishek Jain, Head of Research at Arihant Capital Markets, urged investors to temper expectations from the benchmark index.
“Rather than focusing only on the Nifty, investors should look at select small- and midcap stocks. India is still underperforming some global markets, and headline numbers may not look very strong,” Jain said, suggesting that the rally may face pauses.
From a technical standpoint, analysts see no immediate signs of exhaustion. Pravesh Gour, Senior Technical Analyst at Swastika Investmart, said the index continues to trade comfortably above all key moving averages.
“The 9, 20 and 50-day averages are rising and stacked positively, while the 100 and 200-day averages remain well below current levels. This reflects strong underlying momentum,” Gour said. He added that consolidation near the 26,200-26,300 zone is healthy, indicating absorption of supply rather than a sharp reversal.
Volumes, according to him, remain steady and show participation without panic buying. “As long as Nifty holds above the 25,800–26,000 support band, the structure stays bullish. Dips are likely to be used as buying opportunities,” Gour said.
Vishnu Kant Upadhyay, AVP – Research and Advisory at Master Capital Services, echoed a similar view. He said the rally has been supported by optimism ahead of the Q3 earnings season, selective value buying in large caps and expectations of a possible US–India trade agreement.
“The uptrend remains intact, and the index could attempt a move towards the 26,700–26,800 zone in the near term. A buy-on-declines strategy remains favourable as long as prices stay above 25,800,” Upadhyay said.
What could be the risks?
That said, analysts caution that risks remain. Any earnings disappointment, sustained foreign outflows or renewed input-cost pressures could trigger volatility. Still, most agree that the nature of corrections may be different this time.
“This may not be a one-way rally,” Choudhary said. “But as long as earnings keep delivering and domestic demand remains resilient, corrections are more likely to be consolidation phases rather than trend reversals.”
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)