Can Nifty 50, Bank Nifty scale record highs before Diwali 2025? These 5 factors hold key

The Indian stock market saw strong, broad-based buying on Monday, August 18, driving the benchmark Nifty 50 past the 25,000 mark for the first time since July 25.

The Sensex, Nifty 50, and Nifty Bank indices gained over 1 per cent each during the session, as sentiment was lifted by Prime Minister Narendra Modi’s announcement on GST reforms, hopes of a Russia-Ukraine peace deal, signals from US President Donald Trump that he may reconsider secondary tariffs on India, and S&P’s upgrade of India’s credit rating.

With expectations building around multiple tailwinds in the near term, investors are betting that the Sensex, Nifty, and Bank Nifty could scale record highs in the short term.

Can Nifty 50, Bank Nifty scale record highs before Diwali 2025?

It appears that the Indian stock market is at a crucial juncture of trend reversal, supported by the government’s renewed focus on reforms, favourable growth–inflation dynamics, and expectations of US tariffs easing to manageable levels.

"On the global front, easing economic and trade-related uncertainties—particularly between India and the US—would support investor sentiment. Domestically, the RBI’s recent rate cuts are expected to reduce borrowing costs, which can stimulate demand and support both consumption and investment," said Ajit Mishra, SVP of research at Religare Broking.

"The government’s GST reform proposal, if implemented smoothly, could enhance consumer spending and business confidence. Ultimately, the most decisive factor will be corporate earnings—if upcoming results reflect a strong and broad-based recovery across sectors, it may well provide the trigger for the market to test new highs during the festive season," said Mishra.

Experts point to five key factors that could determine whether the domestic market scales record highs before Diwali 2025.

1. Trump's tariffs

If Trump decides to withdraw the secondary tariffs imposed on India, it would provide significant relief to the market. In such a scenario, experts expect foreign investors to return in large numbers, potentially driving the market to unprecedented highs.

Trump has hinted that the retaliatory tariffs on countries like India and China for procuring Russian oil may be dropped in case of a positive outcome on the Russia-Ukraine front.

"If the US tariff war against India eases, foreign portfolio investors (FPIs) are expected to return in a big way. A rollback of tariffs to the 19–20 per cent range could trigger strong inflows, given that India’s economic fundamentals remain intact, S&P Global has upgraded the country’s rating despite tariff risks, and oil prices are expected to soften further," said G Chokkalingam, the founder and head of research at Equinomics Research Private Limited.

"Easing economic and trade-related uncertainties—particularly between India and the US—would support investor sentiment," said Ajit Mishra, SVP of research at Religare Broking.

2. GST reforms

On August 15, PM Modi announced the next-generation GST reforms. This could be a game-changer for the Indian economy as it may boost consumption, which has been lacklustre despite the good monsoon.

According to reports, most products and services attracting a tax rate of 12 per cent and 28 per cent will be shifted to the 5 per cent and 18 per cent slabs, respectively.

After relief on the income tax front, announced in Budget 2025, the GST reforms could boost rural and urban consumption, boosting the Indian economy.

"The announcement of GST reforms is perhaps the most promising development. While monsoons have been favourable for three consecutive years, discretionary spending has not picked up to the extent seen in earlier periods of good rainfall. The proposed GST reform is a long-awaited move and could be a game-changer, as it would boost disposable incomes, thereby driving corporate earnings growth," Chokkalingam observed.

Chokkalingam added that India has already benefited from direct tax concessions, and an indirect tax cut would further strengthen aggregate demand and help cushion external headwinds.

According to brokerage firm Emkay Global, GST reforms could be a rerating trigger for the market, given the long-term growth benefits to the economy.

The brokerage firm has revised its Nifty target to 28,000 for September 2026, with an aggressive 20.7 times one-year forward price-to-earnings ratio (+1sd above the five-year average).

"The GST rationalisation offsets near-term worries on weak growth and tepid earnings. The six-week downtrend should now reverse, as the outlook for earnings improves considerably, and valuations will factor in the broader positives of this big-ticket reform measure," said Emkay.

3. Revival of corporate earnings

As India's growth outlook remains robust and inflation is under control due to easing food inflation and lower crude oil prices, corporate earnings are expected to improve from the second half of the financial year (H2FY26).

Brokerage firm Motilal Oswal Financial Services estimates FY26 PAT (profit after tax) growth of 9.8 per cent for Nifty.

"Given a favourable base effect, markets are likely to respond positively, especially as multiple government measures are expected to improve overall growth dynamics and sentiments in H2FY26," said the brokerage firm.

4. RBI rate cuts

The Reserve Bank of India (RBI) is expected to further reduce the repo rate as inflation remains low and economic growth comes into focus amid tariff concerns.

Experts expect a rate cut in the upcoming policy decision on October 1.

"A reversal in the interest rate cycle would act as another significant tailwind for the markets, with the RBI widely expected to cut rates in its upcoming policy meeting," said Chokkalingam.

5. Fed policy, movement of the US dollar, bond yields

At this juncture, the scope of a rate cut by the US Federal Reserve appear feeble given the fact that the impact of Trump's tariffs on the US inflation will be visible from the coming months.

Emerging markets like India tend to receive healthy foreign capital inflows when the dollar weakens and bond yields moderate. This can happen only if the Fed embarks on aggressive rate cuts.

Shrikant Chouhan, the head of equity research at Kotak Securities, underscored that the market appears expensive in terms of valuations, with the index trading at 19 times FY27 earnings (one year forward).

"If we receive external liquidity support, the market could surpass its previous highs. For this to happen, a decline in the dollar index or the 10-year bond yield would be necessary. This could occur if the US opts for an aggressive rate cut, which, while unlikely, cannot be entirely ruled out. Such a scenario would help strengthen our currency and attract foreign investments," said Chouhan.

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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.