'4.5% rally in Indian stock markets will gather steam': Why Sensex, Nifty may rise despite tariff concerns

Sensex, Nifty: Benchmark stock market indices on Monday continued their recent rally for the sixth straight session, as foreign investors turned buyers of equities, and as investors judged the recent correction as unwarranted. Stock market analysts said while there are concerns over reciprocal tariffs by the Trump administration on April 2, this stock market rally has more legs. 

On Monday, the BSE Sensex was trading at 77,411.06, up 505.55 points or 0.66 per cent. Nifty stood at 23,498.55, up 148.15 points or 0.63 per cent. Fear gauge India VIX, which suggests the likely market volatility over the next one month, jumped 4.17 per cent to 13.10.

"We believe that the 4.5 per cent rally in Indian markets will gather steam, perhaps ferociously and powered by FII inflows. Very rarely can investors align themselves to the trade that the world's most powerful country and the most powerful man deem fit. Trump’s administration resolves to lower the value of bond yields and the dollar by self-engineering a recession – will support EM currencies and non-dollar equity assets," Emkay Global said.

Speaking at BT Vucanomics 2025 -- Thriving in Turmoil, market veteran Motilal Oswal noted that said despite the recent market fall, the one-year returns for benchmark stock indices are still positive. In his four-decade-long career, Oswal said he has seen instances when the market tumbled 20-25 per cent, and for no good reason. 

Oswal called the recent market fall as consolidation and said the market just took a breather. Oswal noted that one of the major reasons for the recent correction was the fact that the earnings has been muted of late. He noted that between 2020 and 2024, Nifty earnings grew at 26 per cent compounded annually. This growth has fallen to 4-5 per cent, he said.

V K Vijayakumar, Chief Investment Strategist at Geojit Investment Services said the uncanny ability of the market to surprise was evident last week. The fact that this happened when globally markets were jittery on fears of Trump’s reciprocal tariffs kicking in from April 2nd is important, he said. 

"Improving macros of the Indian economy and fair valuations have turned FIIs from sellers to buyers. More importantly, this has triggered massive short covering leading to sharp spikes in prices," he said.

Emkay Global said the reserve currency and current account deficits are joined at the hip and free markets cannot correct the dollar over-valuation. Any substantial correction will require a buy-in from other G10 central banks – the likes of the 1985 Plaza Accord. ‘TRUMP ACCORD 2’ could be the biggest deal that the US President is gunning for.

"If our hypothesis is correct, there could be a ferocious rally in Emerging Markets, including India, as investors chase non-dollar assets. Very rarely do investors get to front-run the trade that the world's mightiest country and the world's most powerful man want to engineer. There is a non-trivial risk that a disorderly and deeper US recession drags global growth," Emkay Global said.

While bond yields will collapse, the dollar index could rally on safe-haven demand. This could cut short the EM/India rally, it said. This is precisely why the US wants higher spending in Europe, Emkay said.

"Focus on domestic consumption and investment sectors, and avoid those with exposure to the US geography. SMIDs will rally hard too. Essentially, stay put with what has worked in last week's rally," Emkay Global said.