Diwali 2026: Will Sensex, Nifty reclaim their peaks or scale new highs? Analysts map the road ahead

After nearly two years of lacklustre returns, intermittent corrections and bouts of volatility, Dalal Street could be heading into a more promising phase. As investors step into Samvat 2083, analysts remain cautiously optimistic that the Sensex and Nifty could reclaim their previous record highs and potentially scale fresh peaks by next Diwali.

A combination of resilient corporate earnings, more reasonable valuations, sustained domestic institutional inflows, improving private capital expenditure and India's robust macroeconomic fundamentals is expected to support the next leg of the market rally, analysts said. However, the road ahead may not be entirely smooth, with elevated crude oil prices, geopolitical uncertainties, global inflation and interest rate movements likely to influence investor sentiment.

The optimism comes after a period of relative underperformance for Indian equities, which has also brought valuations down from their earlier elevated levels, offering investors a potentially more favourable entry point. Notably, the Nifty and Sensex have declined by over 8% over the past year, while both indices are down nearly 9% year-to-date (YTD). At current levels of 23,810, the Nifty is around 10% below its record high of 26,373, while the Sensex, at 76,917, is down approximately 11% from its peak of 86,159.

Will Sensex, Nifty reclaim their peaks by Diwali 2027?

Analysts broadly expect Indian equity markets to recover in Samvat 2083 and believe the benchmark indices have the potential to reclaim their previous record highs by Diwali 2027. They attribute the expected recovery to resilient corporate earnings, improving macroeconomic conditions, more reasonable valuations and sustained domestic investor participation. However, they caution that the pace of recovery will depend on earnings performance and global developments.

Rupen Rajguru, Head of Equity Investments and Strategy at Julius Baer India, expects Indian equities to deliver stronger returns in the upcoming Samvat after two years of relatively subdued performance.

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Rajguru believes the recent market correction has eased valuation concerns, with the Nifty trading at around 17 times its 12-month forward earnings, approximately one standard deviation below its long-term average. Robust macroeconomic fundamentals, healthy earnings growth and continued domestic liquidity should provide further support.

"Post lacklustre returns in the past two years, we expect Indian equities to deliver stronger returns in the upcoming Samvat," Rajguru said.

While volatility could persist in parts of the broader market, he remains constructive on the overall outlook and views market corrections as attractive opportunities for long-term investors. On the benchmark outlook, Rajguru said, "We believe the Nifty and Sensex are well-positioned to reclaim their previous highs by next Diwali."

Rajguru identified earnings growth, moderation in oil prices and interest rates, strong domestic inflows, improving private capital expenditure and resilient economic growth as key catalysts. Another potential tailwind, he said, could come from a reversal in foreign investor positioning and flows. Indian equities have underperformed broader emerging markets by around 60% since September 2024, creating room for a degree of mean reversion in flows and positioning.

Vipul Bhowar, Executive Director and Head of Equities at Waterfield Advisors, also sees signs of recovery emerging in the broader market, supported by economic growth and resilient corporate earnings. He points to the strength in second-quarter earnings, particularly across certain mid-cap and small-cap segments, where corporate performance has outpaced that of large-cap peers. This, in his view, provides a fundamental foundation for market stability.

"Recent concerns about broader market weakness have been tempered by strong indications of an impending recovery, driven primarily by fundamental and structural factors," Bhowar said.

He believes Indian market indices are poised to reclaim their previous highs and reach new peaks by the upcoming Diwali, contingent on the strength of corporate earnings.

However, Bhowar cautioned that the market has entered a different phase, transitioning from a liquidity-driven rally to an earnings-led environment. This makes company-specific performance, operational efficiencies and profit margin resilience increasingly important.

"Future gains in the indices will depend heavily on company-specific earnings performance, operational efficiencies, and maintaining profit margins," he said.

Continued government and private capital expenditure in infrastructure, defence and manufacturing, he said, are key growth drivers. Steady credit growth in the financial sector and technological advancements driven by artificial intelligence could also support corporate earnings. However, he flagged higher crude oil prices, global inflation and the interest rate policies of the US Federal Reserve and the Reserve Bank of India as important external risks. These factors could influence foreign capital flows as well as imported inflationary pressures.

Mayur Shah, PMS Fund Manager at Anand Rathi Advisors, believes nearly two years of consolidation and intermittent corrections have made market valuations more reasonable, creating opportunities for long-term investors. While volatility and pockets of weakness in the broader market could persist in the near term, India's underlying economic fundamentals and corporate earnings resilience remain supportive.

"We expect the Indian equity markets to stage a gradual recovery in the upcoming Samvat, with the possibility of a faster rebound if geopolitical tensions ease and global energy supplies normalise," Shah said.

He believes the recovery will gradually broaden as earnings visibility improves and investor confidence strengthens. Shah identifies resilient corporate earnings, improving domestic consumption, sustained government spending on manufacturing and infrastructure, and a revival in private capital expenditure as key drivers of the next market upcycle.

Sensex, Nifty targets for Diwali 2027: What do analysts expect?

While analysts broadly expect the benchmarks to reclaim their previous peaks, their views differ on the extent of the potential recovery and the factors underpinning it.

"We expect the Sensex to cross 86,200 and the Nifty to move beyond 26,300 by next Diwali, with the potential to establish new lifetime highs," Shah said.

He attributed his constructive outlook to reasonable valuations following the recent correction, resilient corporate earnings and India's relatively strong macroeconomic position.

Continued government-led manufacturing initiatives, incremental capital expenditure, improving credit growth and a gradual recovery in consumption are expected to support the next phase of economic and earnings growth.

India's manageable fiscal deficit and inflation levels, along with steady domestic institutional participation, could provide additional support. A resolution of geopolitical uncertainties and moderation in crude oil prices could further accelerate the recovery by improving global risk appetite and reducing pressure on India's macroeconomic outlook.

Bhowar, meanwhile, noted that the recent market pullback has brought the Nifty's 12-month forward price-to-earnings (P/E) ratio down to a range of 16.4-17.2 times. According to him, this compression enhances the attractiveness of valuations compared with historical averages and offers more favourable entry points for investors. However, future performance, he said, will depend on corporate margin resilience and effective order execution.

Rajguru also sees improved valuation comfort, with the Nifty trading at around 17 times its 12-month forward earnings, approximately one standard deviation below its long-term average. He believes earnings growth, moderation in crude oil prices and interest rates, strong domestic inflows, improving private capital expenditure and resilient economic growth should support the benchmarks. Another potential tailwind, he said, could come from a reversal in foreign investor positioning and flows, given the significant underperformance of Indian equities relative to broader emerging markets since September 2024.

From a technical perspective, Hitesh Tailor, Technical Research Analyst at Choice Broking, also sees improving signs of stability as markets enter Samvat 2083, although he maintains a cautiously optimistic stance.

Tailor places the Sensex's short-term target at around 79,000, followed by 82,500-83,000 in the medium term. For the longer term, he sees the index moving towards 85,000-86,000 by next Diwali.

For the Nifty 50, his long-term target stands at around 26,300.

According to Tailor, the market's long-term support structure, strong accumulation at lower levels and improving price momentum support a positive outlook for Samvat 2083. However, he cautioned that intermittent corrections and periods of consolidation cannot be ruled out.

Disclosure: This article has been written by Kumar Gaurav, who is not a Sebi-registered Research Analyst or an Investment Adviser. Gaurav and their ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective Sebi-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here

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