Sensex, Nifty in 2026: Bulls likely to stage a stronger rally, here's why
Stock market rally: While Sensex is up nearly 9%, Nifty has risen 10% on a year-to-date basis.
- Dec 25, 2025,
- Updated Dec 25, 2025 10:16 AM IST
The Indian equity market looks set to clock higher returns in 2026 after a tumultuous 2025 led by continued changes in the US trade and tariffs policy and negative global cues. While Sensex is up nearly 9%, Nifty has risen 10% on a year-to-date basis. With some analysts predicting a Santa rally in the remaining sessions, Sensex and Nifty are likely to hit fresh record highs this year.
The 30-stock index reached an all-time high of 86,159 and Nifty hit a record high of 26,325 on December 1 this year.
In the previous session, both indices ended on a negative note but stand near their record highs reached earlier this month. Sensex ended 116 pts lower at 85,408 and Nifty fell 37 pts to 26,139 on Wednesday.
According to HSBC Mutual fund, there are four positive factors on the economic front, which may support market performance in 2026. These factors are likely to drive a mid-teens earnings growth for Nifty in FY27 after a potentially single digit growth in FY26.
1. Economic Growth
India's Q2 FY2025-26 GDP growth rate spurted to a robust 8.2%-six-quarter high-beating estimates. The strong performance was led by government measures such as GST cuts and a rise in spending, with overall GDP reaching Rs 48.63 lakh crore for the quarter. In Q1 too, real GDP growth came at a strong 7.8%.
2. More rate cuts likely
The Reserve Bank of India (RBI) changed its policy stance early in the year, eased liquidity significantly and has reduced repo rates by 125 bps on a year to date basis.
"We are now starting to see signs of improvement in credit growth as a result of the same. In our view, benign inflation trends have opened up room for further interest rate cuts," said HSBC MF.
3. GST reforms
The Modi government has undertaken simplification of GST rates by moving to three GST slabs from the earlier five. According to the HSBC MF, the benefit of reduction in GST rates for several categories of products and services is likely to be visible in second half of current fiscal and beyond. The government has also put more money in the hands of the middle class by reducing income tax rates in the Union Budget 2025.
4. Low inflation
Good monsoon and low inflation have lifted rural consumer confidence and this bodes well for future demand. Consumer inflation rose to 0.71% in November 2025 from October. The Reserve Bank of India has projected consumer inflation at 2% for fiscal year ending March 2026, down from 2.6% forecast in October.
The Indian equity market looks set to clock higher returns in 2026 after a tumultuous 2025 led by continued changes in the US trade and tariffs policy and negative global cues. While Sensex is up nearly 9%, Nifty has risen 10% on a year-to-date basis. With some analysts predicting a Santa rally in the remaining sessions, Sensex and Nifty are likely to hit fresh record highs this year.
The 30-stock index reached an all-time high of 86,159 and Nifty hit a record high of 26,325 on December 1 this year.
In the previous session, both indices ended on a negative note but stand near their record highs reached earlier this month. Sensex ended 116 pts lower at 85,408 and Nifty fell 37 pts to 26,139 on Wednesday.
According to HSBC Mutual fund, there are four positive factors on the economic front, which may support market performance in 2026. These factors are likely to drive a mid-teens earnings growth for Nifty in FY27 after a potentially single digit growth in FY26.
1. Economic Growth
India's Q2 FY2025-26 GDP growth rate spurted to a robust 8.2%-six-quarter high-beating estimates. The strong performance was led by government measures such as GST cuts and a rise in spending, with overall GDP reaching Rs 48.63 lakh crore for the quarter. In Q1 too, real GDP growth came at a strong 7.8%.
2. More rate cuts likely
The Reserve Bank of India (RBI) changed its policy stance early in the year, eased liquidity significantly and has reduced repo rates by 125 bps on a year to date basis.
"We are now starting to see signs of improvement in credit growth as a result of the same. In our view, benign inflation trends have opened up room for further interest rate cuts," said HSBC MF.
3. GST reforms
The Modi government has undertaken simplification of GST rates by moving to three GST slabs from the earlier five. According to the HSBC MF, the benefit of reduction in GST rates for several categories of products and services is likely to be visible in second half of current fiscal and beyond. The government has also put more money in the hands of the middle class by reducing income tax rates in the Union Budget 2025.
4. Low inflation
Good monsoon and low inflation have lifted rural consumer confidence and this bodes well for future demand. Consumer inflation rose to 0.71% in November 2025 from October. The Reserve Bank of India has projected consumer inflation at 2% for fiscal year ending March 2026, down from 2.6% forecast in October.