Despite US tariff-related uncertainty, weak earnings, stretched valuations and foreign capital outflow, Indian stock market has seen decent gains in the first half of the calendar year. Benchmark Nifty 50 is up about 5 per cent year-to-date (YTD), thanks to sustained buying by domestic retail investors amid healthy domestic macroeconomic outlook.

What has underpinned the Indian stock market this year so far?

The key factor that has kept the domestic market resilient amid global chaos is the favourable growth-inflation dynamics.

India's retail inflation cooled to its lowest level in over six years in May. Consumer Price Index (CPI)- based inflation eased to 2.82 per cent year-on-year, down from 3.16 per cent in April and 4.8 per cent in May last year.

RBI Governor Sanjay Malhotra lowered the CPI outlook for the financial year 2025-26 to 3.7 per cent from 4 per cent projected earlier, following the central bank's June policy meeting.

Meanwhile, India's economic growth is expected to witness healthy gains in the current financial year. The RBI projects India's real GDP growth at 6.5 per cent in FY26.

The Goods and Services Tax (GST) collections are buoyant, exceeding ₹2 lakh crore in the past two months. In April, gross GST collection was at a record high of ₹2.36 lakh crore and in May, it came at ₹2.01 lakh crore.

The RBI's ₹2.69 lakh crore dividend payout to the central government for FY25 has further bolstered confidence in the Indian economy's outlook.

The recent fourth-quarter results (Q4FY25) lifted market sentiment and strengthened expectations of improved earnings in the upcoming quarters.

Rating agency ICRA forecasts India Inc's operating profit margins (OPM) at 18.2-18.5 per cent in Q1FY26, following the sequential recovery over the past few quarters.

ICRA said this, coupled with a moderation in interest costs, will improve India Inc.'s interest coverage ratio to around 5.1-5.2 times in Q1FY26, compared to 5 times in Q4FY25.

Another key factor boosting the domestic market is the strong influx of retail investors. As of June 15, the number of registered investors on the BSE stood at 21.85 crore, up nearly 24 per cent year-on-year.

The rising influence of retail investors has stabilised the market, cushioning it against sharp declines during periods of foreign capital outflows.

Can the Nifty 50 give double-digit returns this year?

Experts remain positive about the Indian stock market for the medium to long term. However, they underscore that geopolitical tensions and tariff-related uncertainties may cap its gains.

Experts believe the domestic market benchmarks may hit fresh highs this year, but they can still yield returns in the high single digits.

"While returns may remain in the single-digit range for the year, they are expected to be sufficient to push the index to fresh highs," said Pankaj Pandey, the head of research at ICICI Securities.

The key concern is the geopolitical issues. However, the market impact of the Israel-Iran conflict is likely to be limited, with little indication of a sustained negative effect. Ultimately, the focus will come back to earnings, market valuations and macroeconomic trends.

"The Nifty could potentially scale a new high in the second half of the year, supported by favourable macroeconomic conditions and greater clarity on key global factors, including US tariff policies," said Pandey.

Tensions in the Middle East have raised risks of disruption in crude oil supply. In case of a prolonged conflict, crude oil prices could remain elevated for a longer period, which would be negative for the Indian economy and stock market sentiment.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, highlighted that the market's trajectory this year will largely hinge on the duration and intensity of the Israel-Iran conflict, as well as broader developments in the Middle East.

"A key variable to watch is the movement in crude oil prices. If geopolitical tensions ease, markets could stage a meaningful rebound," said Vijayakumar.

Vijayakumar believes a high single-digit return remains within reach for the year. He said investors should stay invested and focus on protecting capital. The safest bets continue to lie in high-quality large-cap and mid-cap stocks.

Dharan Shah, the founder of Tradonomy.AI, a research-driven AI-powered investment platform by Jamnadas Virji Group, believes geopolitical risks could trigger near-term volatility, but India's strong macro fundamentals- easing inflation, robust growth, and resilient earnings- offer support.

"While Nifty's returns may face periodic headwinds, structural prospects remain intact unless global conditions sharply deteriorate," said Shah.

"The smart strategy now is to stay invested in quality names, maintain sectoral balance, and use any corrections as opportunities. Disciplined, long-term positioning will likely outperform reactive moves in a geopolitically uncertain environment," Shah said.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.