As a ceasefire in West Asia after 11 days of conflict took hold, markets bet that the worst of the disruption was behind. The Nifty closed 1.21% or 304.25 points higher at 25,549, while the Sensex closed 1.21% or 1,000 points up at 83,775.87. Thursday’s closing was the highest since 1 October when the Nifty traded at 25,796.9 and the Sensex at 84,266.29.

The gains were led by HDFC Bank , Reliance Industries, Bharti Airtel, ICICI Bank and Bajaj Finance, which together accounted for almost three-fifths of the Nifty’s gains. Reliance Industries’ market capitalization crossed ₹20 trillion for the first time in nine months to touch ₹20.23 trillion. It stood at ₹20.65 trillion on 27 September last year, when the Nifty touched a record 26,277.35.

Dollar, derivatives

Thursday’s rally coincided with the expiry of the June series of derivatives—each series closes on the last Thursday of a month—which saw the Nifty gain almost 3% from 24,833.6 at the May expiry to 25,549 at the June expiry.

As per provisional data from NSE, FIIs net bought shares worth ₹12,692 crore on Thursday, their highest single-day purchase since 28 June 2023.

What aided the rally was the fall in the dollar index—which measures the greenback against a basket of six currencies including the euro, pound and yen—to a one-year low of 97.22. A weaker dollar boosts returns from risky emerging market equities.

Added to that was the cooling in Brent crude from $78.85 a barrel on 19 January at the height of the Israel-Iran conflict to $68.5 at the time of writing on Thursday.

Global risk-on

“Lower oil, dollar, cut in interest rates back home and rising domestic equity inflows have aligned Indian stocks with global peers, which are on a global risk-on,” said Nitin Jain, CEO & CIO, Kotak Mahindra Asset Management Singapore.

Interestingly, Jain said that not just mutual funds, other domestic institutional investors (DIIs) were also pumping money into Indian stock markets.

In the first five months of 2025 through last Friday, net inflows of DIIs other than mutual funds, stood at $13 billion, more than the $11 billion invested in the whole of 2024.

“This shows that not just MFs, but banks, insurance and pensions funds are upping the ante,” he said.

Cooling crude

Cheaper crude benefits India, which imports 85%, or 5.5 million barrels per day, of its oil requirement.

Investors turned richer by ₹3.5 trillion after Thursday’s rally. Options data for the week ending 3 July indicate a 3% range for the market from 25210 to 25890, with a bias to the higher end of the range.

This is supported by fear gauge India Vix falling to a three-month low of 12.59. The yearly average of the index is 15.52. A lower reading indicates confidence while a higher reading implies rising risk-off sentiment.

In the past two days, global oil prices—particularly Brent—have cooled off, dropping below $70, which reflects easing geopolitical tensions, which had posed a major uncertainty for India, said Sachin Shah, executive director and fund manager at Emkay Investment Managers.

With crude now below that threshold, a key risk appears to have receded, Shah added, saying that as far as geopolitical concerns go, India seems to be in a safe zone.

What’s next

Moving ahead, earnings season, the return of global capital and further easing of crude prices will be the key triggers for Indian markets, say experts.

“After three weak quarters in FY25, Q4 showed signs of stabilization. A supportive macro backdrop—driven by RBI’s liquidity infusion and a deeper-than-expected rate cut—is expected to boost credit demand, which has been historically low. This sets the stage for a gradual earnings recovery,” said Christy Mathai, fund manager at Quantum Mutual Fund.

Also, the consensus for FY26 earnings growth of 10–11% appears achievable, especially with improving monsoons, rising rural income, and easing inflation, Mathai added.

Shah from Emkay Investment Managers added that there may be a potential shift of global capital into emerging markets like India, as investors sell dollar assets and reallocate across geographies and asset classes. “So far, FII inflows remain muted, but any pickup could significantly boost sentiment,” he said.

Vinay Jaising, CIO and head of equity advisory at ASK Private Wealth said that FII ownership is at a 12-year low of around 16%, creating room for re-entry.

Additionally, crude oil dropping below $65—well under India’s $80 comfort zone—will further aid in containing inflation and managing fiscal deficits, Shah said.

Strong outlook

Jaising of ASK Private Wealth said the outlook for Indian equity markets remains strong going ahead.

Domestic inflows, particularly from retail investors, are structurally strong and here to stay, as retail India’s contribution to GDP via household savings has jumped from ₹0.4 trillion in 2014 to ₹4 trillion today equating to 1.3% of GDP—a 10x rise, Jaising said.

“The rupee remains firm amid US political and debt concerns, while India’s risk premium has declined. With earnings downgrades likely behind us and revisions likely ahead, the outlook seems strong,” Jaising added.