NIFTY50, SENSEX 4.5% away from record high levels; check four triggers that could help fill the gap

Indian equity investors are breathing a sigh of relief as the equity markets are back in action with back-to-back rallies in the benchmark and broader indices. The benchmark indices corrected more than 17% over 6 months, starting September to April. However, rallied more than 15% from the 52-week low levels within two months from April 7. At the time of writing, NIFTY50 traded roughly around 25,000, and SENSEX traded at 82,200 on May 16 at 11:40 am. The benchmark indices now traded only 4.5% below the previous record high levels of 26,277 and 85,978. With such a small gap remaining for the indices to be back to record high levels, here are some key factors that could lead the markets back to high levels.

Global headwinds soften

NIFTY50 and SENSEX peaked out in September 2024 due to domestic headwinds. However, in 2025, global headwinds popped up to a larger extent, impacting the overall sentiment of the markets. Starting in 2025, persistent high inflation in the US increased the recessionary fears. In addition, from April 2, Trump's tariffs further added worries and increased the probability of a global recession. However, things seem to have changed in May with softer inflation print giving more headroom for the US Federal Reserve to cut interest rates further. Lastly, Trump’s 90-day pause in the imposition of reciprocal tariffs and subsequent trade deals with the UK and China ease out the main overhang on the markets.

The latest border tensions between India and Pakistan added worries and soured the sentiment. However, the news of ceasefire between the two nations abated the worries immediately.

Optimism around earnings

The Q4FY25 earnings season has bolstered investor confidence with better-than-expected earnings performance by the key large-cap companies. 38 out of 50 companies from the NIFTY50 have reported earnings till now. On a consolidated basis, 36 companies have posted a revenue growth of 8% YoY and an 8.2% YoY jump in profit after tax on a cumulative basis.

The broader indices of NIFTY midcap 100 and NIFTY small cap 100 have outperformed the benchmark or large-cap companies by a wider margin. Out of 100 companies from the NIFTY midcap 100, 53 companies have reported their earnings till now. On a cumulative basis, they showed 6.4% YoY growth in revenue and 26.4% YoY growth on the bottom line. Similarly, for NIFTY smallcap 100, the revenue growth was 7.5% and 35% growth in the bottom line for 34 companies that reported their results.

Easing inflation

The latest retail inflation print eased to 3.16% for April 2025, much below the expectations of 3.3%. The number is the lowest since July 2019 and much below the RBI’s targeted range of 4%. This gives enough headroom for the RBI to fasten the rate cut trajectory, thereby boosting the credit demand in the economy. In addition, the RBI conducted multiple open market operations from March 2025, injecting the economy with enough liquidity to facilitate credit growth.

Persistent FII buying

Foreign investors who reduced their equity holdings in India to multi-decadal lows are now back with strong inflows. FIIs are now net buyers in the secondary markets for the third consecutive month. According to experts, the FII inflow is expected to continue further due to strong growth potential and affordable valuations after recent corrections will remain key triggers for inflows.