Sensex, Nifty: Why stock market looks set for strong rally; sectors to watch

Indian stock market indices, Sensex and Nifty, are set for a gap-up opening today, buoyed by a global market rally. This optimism follows the Trump administration’s decision to suspend reciprocal tariffs on most major trading partners—excluding China—for 90 days. However, gains may be tempered by an overnight decline of 2.5–3.5 per cent in US equities, following the imposition of steep 145 per cent tariffs on Chinese imports.

According to Emkay Global, the temporary halt in US tariffs is a significant positive development. The brokerage believes there is minimal likelihood of the stringent April 2 tariff proposals being implemented now. It is optimistic about high-beta sectors and anticipates a rebound in smallcap and midcap stocks, which have recently underperformed.

Emkay said the economic and financial disruptions already experienced serve as a limiting factor for aggressive US trade policies. The brokerage expects a surge in bilateral trade agreements over the next three months, eventually resulting in a tariff framework only slightly more protectionist than the previous regime.

While a mild slowdown in the US economy remains possible, the brokerage ruled out the likelihood of a deep recession. It also dismissed fears of global financial market disruption and projected a sharp recovery in commodity prices.

"The stars are now aligning for a strong rally for India. Earnings estimates are bottoming out and we expect the downgrade cycle to arrest. Valuations have also corrected – not only for the aggregate Nifty but also for more granular metrics like the median PE for BSE 500 (down 21% in the last 6M)," Emkay said. 

The domestic brokerge said the improved visibility for the US economy is an additional positive, as it expects smallcap and midcap stocks to reverse their strong underperformance against large-caps.

"We pivot on our market view and now expect a strong India equities rally with earnings bottoming out, moderate valuations, and global uncertainty substantially reduced. We turn positive on technology and materials, while retaining OW on discretionary and healthcare. We cut our staples exposure to zero, and retain UW on financials," the brokerage said. 

Emkay suggested a Nifty target of 26,000 and said one should expect some volatility, as news on tariffs ebb and flow, but ignore the noise and buy into any consequent corrections.