The Nifty pushed past 26,200 for the first time since its intraday lifetime peak of 26,277.35 on 27 September last year. Powered by HDFC Bank and Reliance Industries, the Nifty closed 0.54% higher at 26,192.15, near its record close of 26,216.05 on 26 September, 2024. The Sensex closed 0.52% higher at 85,632.68, a whisker away from its own peak of 85,836.12. HDFC Bank has a 12.78% weight in the Nifty while Reliance has 8.53%.

The rally was led by cash buying as well as derivatives short-covering, exchange data showed. Foreign portfolio investors (FPIs) net bought a provisional ₹283.65 crore worth of shares, while DIIs lapped up ₹824.46 crore. FPIs cut their net bearish index futures bets by buying back contracts worth ₹405 crore. FPIs also turned a tad more optimistic, increasing bullish call options on Nifty and Bank Nifty to 56,530 contracts on Thursday from 22,531 the previous day.

Looking ahead

Analysts now expect the rally to be led by fresh buying in large-caps like Reliance, which ended Thursday just 10 paise short of its fresh 52-week high of ₹1,551. HDFC Bank, which closed at ₹1,008.85, also hovers a few points below its 52-week high of ₹1,020.5 hit on 23 October.

Another reason for the rekindled optimism is the return of FPIs. After selling for three months in a row since July, FIIs turned net buyers in October, scooping up ₹10,167.46 crore of equities, followed by another ₹500.70 crore so far in November, showed NSDL data. As of Thursday, FPIs' cumulative net short index futures stood at 165,565 contracts. Covering a part of these can also take the Nifty and Sensex to new highs.

Saurabh Mukherjea, chief investment officer and co-founder at Marcellus Investment Managers, is cautiously optimistic. Though he expects things to improve, he thinks it is too early to get carried away. The December earnings season will be the real moment of truth, especially with markets betting on a return to double-digit growth after nearly 10 dull quarters, he said. If earnings don't reflect the benefits of the GST cuts, "the mood could sour quickly," he warned.

The Nifty has now rallied 13% or 3,026 points in the fiscal year through Thursday. According to brokerage ACMIIL,part of the Pantomath Group, the biggest contributors to the rally were Reliance, accounting for 357 points, Bharti Airtel (215 points), Mahindra and Mahindra (172), State Bank of India (155) and Eternal (130).

However, calling this the dawn of a bull run would be premature, according to Mukherjea of Marcellus, who says India's jobs situation is as grim as before, and private capex hasn't meaningfully kicked into gear. In his view, there's still plenty to be circumspect about.

Steam left

Kkunal Parar, vice president, technical research and algo at Choice Equity Broking believes the Nifty may have more steam left. "The index vaulting past its intraday peak of 26,277 would signal a pick up in momentum, opening the path for a run up to 26,500," he said, adding 25,700 would be a check on the downside.

According to a Nuvama Institutional Equities report, "BSE500 (ex-OMCs) posted top-line/profit growth of 9%/6% YoY—with profit margins now peaking out." The report also noted that profits in industrials, durables, power and BFSI softened, while sectors such as cement, chemicals and autos saw an acceleration.

A case in point, according to Nuvama, is that BSE500 capex growth has slowed to just 4% YoY in H1FY26 (versus 12% in FY25 and a 20% CAGR over FY22-24). The capex slowdown was broad-based, except in the power sector, and mainly due to weak topline growth. The brokerage also said FY26 earnings estimate has been trimmed by 1%, but the consensus is now factoring in a sharp earnings pickup for H2FY26 and FY27, at 16% and 18% growth respectively, versus 7% in H1FY26.

According to Axis MF chief investment officer Ashish Gupta, returns in 2026 may be better than this year's, but he also warns that equity oversupply could keep gains from running too far. For now, he's leaning toward autos, banks, NBFCs, consumer discretionary stocks and select companies in electronics manufacturing services. He also thinks investors may consider the ongoing negotiations with the US; if it finally comes through, it could open the door to a fresh set of opportunities.

Lagging

The Nifty has climbed nearly 11% since the year began, but still trails some major global markets: Taiwan's TAIEX is up about 19%, Hong Kong's Hang Seng 29%, and Japan's Nikkei 225 around 25%. In other regions, the Euro Stoxx 50 has gained 14.4 %, the S&P 500 12.9%, and South Korea's Kospi a sharp 67%.

Year-to-date, nearly 65% of major global equity indices have hit new highs - one of the broadest bull-market phases on record - and second only to the pre-global financial crisis boom in 2007, when about 70% of country benchmarks reached fresh peaks, according to a 13 November CLSA report.

With India's relative valuation versus China and Emerging Market (EM) benchmarks much more reasonable, CLSA expects India to now start participating in the ongoing global equity bull run.

Options signals

Monthly options data also signals that Nifty could test a new high of 26500 by Tuesday, surpassing the 26277.65 hit on 27 September last year. Based on this data, the immediate support for the market is at 26,000 while resistance is at 26,500. The November series of options expires this Tuesday.

On Thursday, as the market consolidated gains, these options moved into an overbought zone, as optimistic put option sellers wrote or sold 50% more puts than calls. This was up from 29% more puts sold than calls the previous day. The normal put-call ratio, according to Rohit Srivastava, founder, IndiaCharts Data Analytics, is 0.7-1.3 . Any level above 1.3 ratio signals an overbought zone. Srivastava said the overbought conditions are on the back of the fresh optimism seen on Thursday.

At the end of trading on Thursday, options traders had added 75,605 put contracts at the 26,200 level, taking its outstanding positions to 102,788 contracts. Against this, the number of calls sold at the 26200 level were only 6685 taking the total contracts to 100,800. Sellers sell more of puts than calls when they expect the markets to rise and vice versa.

"I expect the market to hit a fresh high over the next few sessions," said Kruti Shah, quant analyst at Equirus, referring to the put build-up.