Record height coming? Sensex rises above 700 points, Nifty crosses 26,000: 5 factors driving the market rally

India’s stock benchmarks the Sensex and Nifty rose sharply on Monday as softer-than-expected US inflation data reinforced expectations for additional Federal Reserve rate cuts in 2025 and signs of progress in US-China trade talks, among other factors, lifted investor sentiment.

The S&P BSE Sensex rose over 700 points to an intraday high of 84,932.08, while the NSE Nifty 50 rose over 200 points to an intraday high of 26,005.95. The Nifty index is now just 1% away from its all-time high of 26,277.35, while the Sensex is 1.2% below its record peak of 85,978.25.

Here are the five factors driving Monday’s rally:

1. Hope for Fed rate cuts

Softer-than-expected US inflation data from September strengthens expectations for further interest rate cuts by the Federal Reserve in 2025. US consumer price inflation has eased over the past month, boosting hopes that the Fed will cut rates at its policy meetings in November and December.

Lower U.S. interest rates tend to make emerging markets like India more attractive to foreign investors.

2. Progress in US-China trade negotiations

Optimism about the easing of global trade tensions also supported sentiment. Senior Chinese and US economic officials have reportedly finalized the framework of a potential trade deal that US President Donald Trump and Chinese President Xi Jinping will review later this week, US officials said on Sunday. U.S. Treasury Secretary Scot Bessent’s statement that there is a ‘substantial framework for trade negotiations with China’ indicates that a U.S.-China trade deal is on the horizon.”

3. Rupee strength

The Indian rupee outperformed most of its regional peers in October, supported by consistent interventions from the Reserve Bank of India that helped stabilize the currency after a series of negative global signals.

The local unit is up almost 1% so far this month, although it was slightly weaker on Monday at 87.9850 per US dollar. The central bank’s heavy intervention earlier this month lifted the rupee from a near-record low, with traders suggesting the RBI now appears to be defending the currency around 88.

Besides stabilizing the exchange rate, the RBI’s actions have helped the rupee outperform other Asian currencies even as the dollar strengthened this month, driven by weakness in the euro and Japanese yen amid political uncertainty.

The dollar index rose more than 1% against a basket of major currencies in October, while the Korean won and Philippine peso fell about 2% and 0.7%, respectively.

Adding to the momentum, stronger inflows from foreign portfolios have also supported the rupee, with foreign investors buying about $2.7 billion worth of Indian stocks and bonds so far this month.

4. Profit and momentum during the holidays

India’s domestic fundamentals are showing renewed strength, supported by buoyant demand during the festival season and signs of a pick-up in private sector capital expenditure. “The long-awaited recovery in capital investment has significant positive implications for Indian growth and the stock market,” said Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments.

“Conditions are favorable for the Nifty and Sensex to climb to record highs. A key feature of the ongoing rally is the strong correlation with short covering – a trend that has further to run,” Vijayakumar said.

Meanwhile, banking stocks gained thanks to solid quarterly earnings. The Nifty Bank and Nifty PSU indices rose up to 1% on the day on earnings momentum in response to strong performance by HDFC Bank, ICICI Bank, State Bank of India and other lenders in the second quarter of FY26.

HDFC Bank reported an 11% year-on-year profit increase, supported by higher net interest income, while smaller lenders such as AU Small Finance Bank, Federal Bank and IDFC First Bank also posted robust results, boosting investor sentiment and reinforcing the broader market rally.

5. Technical data points to further upside potential

From a technical perspective, market indicators point to room for further gains in the near term. “While Friday’s recovery stalled near VWAP resistance, the formation of a morning star pattern raises prospects for an early return to upside targeting 26,186,” said Anand James, chief market strategist at Geojit Investments.

“However, if the initial rebound fails to break the 25,940–26,000 barrier, expect downward moves to resume, with targets near 25,590–25,400,” James said.