Nikkei hits record high with 31% six-month rally; Nifty down 9% — Can Indian market bounce back?

Japan's Nikkei 225 continued its strong upward momentum on Tuesday, touching a fresh record high of 65,317.69 before settling 0.25 per cent lower at 64,996.09. Despite the marginal decline, the Japanese benchmark has surged 31.15 per cent over the past six months.

In contrast, India's benchmark Nifty50 index ended Tuesday's session 0.74 per cent lower at 23,913.70 and has declined 8.74 per cent during the same period.

Ravi Singh, Chief Research Officer at Master Capital Services, said the difference in returns between Nikkei and Nifty has been quite noticeable for the last six months.

"While Nikkei has delivered a strong rally, Nifty has remained under pressure, leading many investors to question whether India is losing momentum. But the picture is not as straightforward as it seems," Singh said.

He noted that Japan has benefited from multiple supportive factors, including improving economic conditions, corporate reforms and strong global investor interest in technology and semiconductor-linked companies.

"A weaker yen has also worked in favour of Japanese exporters, helping improve earnings expectations and supporting the market rally," Singh added.

On the Indian side, Singh said softer-than-expected corporate earnings and concerns around elevated valuations in certain sectors have made investors cautious.

"Large sectors such as IT, banking and consumption have also not delivered the pace of growth the market was hoping for, which has weighed on benchmark performance," he stated.

However, Singh maintained that the current weakness does not undermine India's long-term growth story.

"Strong domestic participation through SIPs (Systematic Investment Plans) and institutional buying continues to provide stability. The current phase looks more like a temporary consolidation period rather than a structural concern," he said.

According to Singh, earnings growth and global cues will remain key drivers for the market going ahead.

"If profitability improves and global uncertainties start easing, Nifty has enough room to stage a meaningful comeback over time," he further stated.

Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, said crude oil prices remain a major factor influencing Indian equities.

"If the crude oil prices cool off decisively to a range of $70-90 per barrel or below, then the Indian market can outperform in the medium- to long-term," Bathini said.

He added that elevated crude oil prices and heavy selling by foreign portfolio investors (FPIs) have weighed on domestic equities in the near term.

"Over the short term, there is an overhang as FPIs have largely been on a selling spree as a specific global theme is missing in India due to highly volatile crude prices of around $100 per barrel, which is the key reason for the underperformance of the domestic index," Bathini noted.

Deven Choksey, Managing Director at DRChoksey FinServ Pvt, also pointed to sustained FPI outflows as a key pressure point for the Indian market.

He said FPIs have been relentless sellers in the domestic market as they continue shifting portfolios out of India, putting additional pressure on the Indian rupee.