India’s benchmark Nifty 50 index surged past the key 25,000 mark on Thursday, notching its highest close in seven months amid signs of easing geopolitical tensions. The rally coincided with the weekly derivatives expiry, pushing volume turnover on the National Stock Exchange to ₹1.28 trillion—the highest since 27 March’s ₹1.5 trillion mark.

Besides, potential short covering investor sentiment got a lift after US President Donald Trump said India had offered a “zero-tariff” trade deal for American goods. However, after market hours, India dismissed Trump’s claim with external affairs minister S. Jaishankar clarifying that trade talks with the US were still ongoing and “complicated”. 

Adding to the market buzz, MSCI India’s upcoming index rejig on 30 May likely prompted mutual funds and exchange-traded funds (ETFs) tracking the index to begin realigning their portfolios. 

According to Abhilash Pagaria, head of Nuvama Alternative & Quantitative Research, India could see passive inflows of nearly $200 million from foreign institutional investors (FIIs) due to these changes. 

“India continues to hold its position as the second-largest country weight in the MSCI EM (emerging market) index, maintaining a weight close to 19.5%. With the latest changes, the stock count will rise from 157 to 159,” he said.

On Thursday, Nifty 50 jumped 1.6% higher to settle at 25,062.10 points, the highest since it reached 25,127.95 on 14 October 2024. The S&P BSE Sensex climbed 1.5% to close the day at 82,530.74 points, the highest since 82,497.1 on 3 October. 

Thursday belonged to the largecaps, which outshone their midcap and smallcap peers. The Nifty Midcap 100 edged up just 0.7% and the Nifty Smallcap 250 managed a modest 0.8% gain.

India: A distinct opportunity

Irrespective of geopolitical developments, investors need to focus on “fundamentals like economic growth, where India stands out among major economies, a falling interest rate regime, lower oil prices, and relatively robust earnings, to name only a few”, said Sunil Singhania, founder of Abakkus Asset Manager.

Sandeep Bagla, chief executive of TRUST Mutual Fund, said while the worst of geopolitical tensions may have eased, volatility could still remain elevated in the near future. 

“India is a distinct and attractive opportunity compared to other emerging markets,” he said, adding, however, that although investors have several opportunities on a relative basis, valuations remain high. Still, Bagla remains optimistic about the long-term prospects of sectors such as defense, premium consumption, and financials. 

On Thursday, all sectors ended in the green with Nifty Auto and Nifty Realty leading the charge, gaining 2% each. In terms of stocks, index heavyweights Reliance Industries Ltd, Infosys Ltd, and ICICI Bank Ltd were the biggest contributors to the rise in Nifty 50 index.

Asian markets lost momentum on Thursday—Japan’s Nikkei, China’s CSI 300, Hong Kong’s Hang Seng, and South Korea’s Kospi all lost about 1%.

The ceasefire rally

India faced heightened concerns the past fortnight due to the escalating conflict with Pakistan, sparking a wave of hedging activity. However, following the ceasefire between both nations, India’s equity market experienced a relief rally. The positive shift was further supported by a global rebound driven by easing tensions in US-China trade talks.

The big question now is how long this momentum can keep its stride.

“Sustenance in the long run will depend on market earnings,” said Jitendra Sriram, senior fund manager, Baroda BNP Paribas Mutual Fund.

The relief rally post the brief India-Pakistan conflict has been the single biggest factor for the near-term optimism. Also, any let up in global tariff wars could mean that global growth may not suffer as much as has been feared, Sriram explained. 

Also, the contours of Trump’s final proposals for the US pharmaceutical sector were also relatively watered down from the original proposals. This also fueled some pick-up in global plays like metals, technology, and pharmaceuticals, which have meaningful weights in Indian indices, Sriram added.

Corporate earnings have also been weighing on the markets. 

Bernstein Research said in a 13 May report that “the single largest concern that we… received from investors has been on the earnings risks front”. But the brokerage does not expect more corporate rating downgrades for now.

Overall, there is a slight slowdown with NSE100 firms growing at 10%, compared with 11% in the previous quarter. However, the worst-case earnings projections that resulted from continuous downgrades since September have not materialized. 

About 51% of companies exceeded market estimates by over 4% in the final quarter of 2024-25, the highest since June 2023, Bernstein said. The percentage of companies missing estimates was at its lowest since September 2021.

(With inputs from Ram Sahgal)