India’s equity markets have soared to new highs since April 2025, delivering stellar returns across segments. The Nifty 50 surged from 21,750 to over 25,550, registering a 17% jump in less than three months. The rally was not confined to bluechips alone. Broader indices outperformed, with the Nifty Midcap 100 vaulting 27.5%, signalling heightened investor optimism across market capitalisations. The rise has sparked renewed interest from both retail and institutional investors. But the question is: what is driving this growth?
What’s Fuelling the Momentum in the Indian Stock Market?
Here is what’s helping the Indian stock market surge.
Ease in Interest Pressure
The Indian stock market is rallying on relief from interest rate pressure, following the RBI’s 50 bps repo rate cut to 5.50% on June 6, 2025. This marks a cumulative 100 bps reduction since February, shifting the stance from accommodative to neutral. Liquidity surged, with ₹9.5 lakh crore infused into the banking system, and the CRR was cut to 3.0% in phased tranches. Consequently, the weighted average call rate dropped near the lower Liquidity Adjustment Facility (LAF) corridor, easing short-term borrowing costs.
Stronger Indian Rupee
A stronger Indian Rupee, currently trading at ₹81.20/USD, up 2.4% from April lows, has supported investor sentiment and corporate earnings outlook. Import-heavy sectors, such as metals and chemicals, saw margin expansion, with the Nifty Metal Index rising 2.3% on June 26. The Dollar Index’s decline to 96.81 (a 3-year low) has further supported rupee appreciation. This currency strength reduces input costs for listed companies, especially those sourcing raw materials globally.
Geopolitical Ease
The Iran–Israel ceasefire, announced on June 25, triggered a 1.21% rally in both the Sensex and Nifty, closing at 83,759 and 25,549, respectively. This marked their highest levels since October 2024. The U.S. Dollar Index fell to 97, a three-year low, after President Trump’s criticism of Fed Chair Powell, which boosted global risk appetite. Additionally, India–U.S. trade negotiations gained momentum, with a mini-deal expected by September. These developments reduced global uncertainty, enhancing investor confidence. Nifty Midcap 100 and Smallcap 100 also rose over 0.5%, while the Nifty Metal index jumped 2.3%, reflecting broad-based optimism.
Stable Commodity Prices
Stable commodity prices have emerged as a key driver of the Indian stock market’s resilience in July 2025. Copper futures held steady near ₹891 per kg on MCX, while wheat prices remained flat due to elevated domestic inventory and OMSS policy buffers. Gold hovered around ₹97,000 per 10g, reflecting muted volatility despite global fiscal concerns. This price stability has supported input cost predictability for sectors like consumer durables (+2.77%) and healthcare (+2.11%).
Renewed FII Investment
Foreign Institutional Investors (FIIs) have infused ₹1.71 billion into Indian equities in June 2025 alone, reversing a nine-month selling streak that saw outflows of ₹3.47 trillion since October 2024. On April 15, FIIs made their third-largest single-day purchase of ₹6,065.78 crore. Financial services led the rebound, attracting ₹22,910 crore in late April, followed by capital goods (₹2,944 crore) and telecom (₹2,500 crore).
This surge highlights the strategic re-entry of FIIs into growth-centric Indian sectors.
Improved Margin and Earnings
Strong margin expansion and resilient earnings have also fuelled the stock market rally. Median operating margin for BSE Allcap firms stood at 15.3% in FY25, near the post-COVID peak of 16.1%. Telecom posted 14.7% margins with a 114% PAT surge, while power maintained 33.1% margins. Consumer services experienced a 73% profit growth, while chemicals rebounded by 27% after a prior decline.
Despite revenue growth slowing to 5% in FY25, cost controls and distribution efficiencies have preserved profitability. These margin-led earnings have lifted the Nifty 50, trading at a forward P/E of 21x.
What’s Beyond the Indian Market?
From April to June 2025, Asian equity markets also staged a rally, driven by solid earnings, increased liquidity, and improving sentiment. South Korea’s KOSPI surged over 30%, driven by a rebound in semiconductor exports and strong Q2 earnings from tech giants like Samsung and SK Hynix. Taiwan’s TAIEX climbed 30%, fueled by global chip demand and AI-related investments, with TSMC reporting a 22% YoY revenue jump. Hong Kong’s Hang Seng Index gained 25.5%, supported by easing US-China tensions and a revival in IPO activity.
What’s Ahead for Investors?
With easing interest rates, a stronger rupee, and a return of foreign investments, India’s stock market outlook remains positive. Margin-led earnings growth and sector-wide participation add further strength. However, global developments and commodity prices must be watched closely. For investors, this may be an opportune time to review their portfolios and consider quality mid-cap stocks and growth-focused sectors. While the rally appears promising, staying diversified and focusing on long-term fundamentals will be crucial for navigating the road ahead.
