Sensex surges nearly 9% in April so far: These 5 factors will hold the key to a sustained rally in 2026

The Indian stock market has seen healthy gains in April, largely due to the diplomatic efforts towards ending the conflict in West Asia and a downtick in crude oil prices.

Market barometer Sensex has surged nearly 9% in April so far, looking set to snap its four-month losing streak.

Market sentiment has improved as hopes rise that the US and Iran will end their conflict soon. After the first round of talks between the two countries failed, the second round of talks is expected to resume in the coming few days, according to media reports.

However, risks persist. No one knows if the second round of talks will result in desired outcomes. There is still not much clarity on how Washington and Tehran will iron out the main bones of contention.

The 30-share index is still more than 9% down from its record high of 86159 hit on December 1 last year. The NSE counterpart Nifty 50 is 8% down from its all-time high of 26,373 scaled on January 5 this year.

"The market is shifting from a liquidity-driven rally to a more cautious, data-dependent phase, where outcomes around inflation, debt sustainability, and geopolitical stability will dictate the next major move,” said Justin Khoo, Senior Market Analyst - APAC at VT Markets.

Key factors that will hold the key to a sustained rally

Experts point out the following five factors that hold the key to a sustained rally in 2026:

1. Geopolitics

The US-Iran factor remains one of the key triggers for the market. A final solution of the conflict will be a major relief for markets globally, as it may drive crude oil prices lower.

As Reuters reported, negotiators from the US and Iran could return to Islamabad later this week to resume talks aimed at ending the ongoing conflict.

The market is currently discounting the end of the war, even though uncertainty persists about the timeline of the end of the war.

2. Crude oil price trajectory

Crude oil prices have declined significantly over the last few sessions. Brent Crude prices traded below the $95 per barrel on Wednesday morning, falling by more than $10 in just two sessions.

"Crude oil prices have cooled significantly to below $95 per barrel. However, they are still elevated. Oil prices falling to $70 per barrel is almost impossible this year in 2026. Around $80 would be okay; it is a level the economy can absorb. Once the conflict is over, it could slowly come down to that $80 level," VK Vijayakumar, chief investment strategist at Geojit Investments, said.

3. Earnings

The Q4FY24 earnings are expected to remain weak due to increased input costs driven by war-led supply chain disruptions.

According to a Mint report, top Indian brokerages expect Nifty 50 companies' profit to grow by an average 4% year-on-year in Q4. The Nifty 50 may deliver earnings growth of around 6% for FY26, down from earlier expectations of 8–10%.

While the market might have discounted weak earnings in Q4, the impact of elevated crude oil prices on the earnings of the upcoming quarters cannot be ascertained at this juncture.

"We believe consensus earnings are yet to incorporate the hit to margins from higher commodity costs and weaker demand. FY27E seemed like an earnings recovery year. However, if oil sustains at $85-90, it could still strain the macro and, in turn, hurt earnings," said Kunal Vora, Head of India Equity Research, BNP Paribas India, in his April India Strategy Report.

4. US Federal Reserve's monetary policy

The monetary policy decisions of the US Federal Reserve will influence the movement of the US dollar and bond yields, impacting the flow of foreign capital in emerging markets like India.

With inflationary risks rising due to the energy price flare-up, many experts believe the Fed may not cut rates this year. This may aggravate foreign capital outflows from India, exerting pressure on the Indian stock market.

5. Trump's tariff policies

According to Bloomberg, US Treasury Secretary Scott Bessent said President Donald Trump's sweeping tariffs on several US trading partners could be restored in July to levels that existed before most of them were struck down by the Supreme Court of the United States.

If Trump's tariffs are reimposed, it will be a blow to the prospects of market recovery, even though the US-Iran war ends.

"Everyone has forgotten about Trump's tariffs for a moment, but once the war is over, Trump may shift his focus to it, which will be negative for markets," said Vijayakumar.

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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.