Indian equity markets staged a sharp recovery this week after sliding on Budget day due to the STT shock and an AI-driven sell-off in IT stocks. Sentiment improved following the announcement of a long-awaited trade deal with the US, helping the Sensex and Nifty rise nearly 1.6% and 1.5%,
Domestic markets witnessed a rollercoaster ride this week, recovering from a sharp slide on Budget day (on the STT shock) and an AI-induced sell-off in IT stocks. The long-awaited trade deal with the US turned out to be a game-changer the day later, and the BSE Sensex and the Nifty gained nearly 1.6 per cent and 1.5 per cent, respectively, for the week.
IT stocks were pummeled, losing about ₹2.4 lakh crore in market cap this week, with the BSE IT index falling 6.2 per cent.
Morgan Stanley view
“Indian stocks enjoy a rare combination of inexpensive relative valuations, poor trailing performance, strong policy stimulus and a consequent growth upcycle, an undervalued currency, weak foreign positioning and potentially a new buyback cycle,” said Morgan Stanley, expecting the BSE Sensex to hit 95,000 (base case scenario) by December-end, which is around a 14 per cent rise from the current level.
On Friday, after opening lower, both the Nifty and Sensex closed in the green. The benchmarks were also supported by broader indices. While the Nifty 50 rose 0.2 per cent to 25,693.70, the BSE Sensex gained 0.32 per cent to 83,580.40.
macro comforts
The falling intensity of oil in GDP and rising share of exports in GDP, especially services, and fiscal consolidation imply a lower saving imbalance, Morgan Stanley said, adding that this will allow structurally lower real rates. “At the same time, lower inflation volatility as a result of both supply-side and policy changes (flexibility inflation targeting) means that volatility in interest rates and growth rates is likely falling in coming years. High growth with low volatility and falling interest rates and low beta = higher P/E. This also supports the shift in household balance sheets toward equity,” the global investment advisory firm added.
RBI pause
Meanwhile, the Reserve Bank of India kept the key repo rate unchanged, as widely expected. However, it acknowledged that external headwinds have intensified since the December 2025 meeting.
FPI buying
Foreign portfolio investors have turned buyers. After selling about ₹36,000 crore, they then bought ₹8,129 crore worth in February.
Complementing these gains, almost all sectoral indices logged weekly increases, while the broader small-caps and mid-caps rose 1.23 per cent and 1.6 per cent, respectively.
Post-Budget trend
A historical analysis of the past three decades indicates that, following the Budget, Nifty has delivered an average return of around 10% over the subsequent three months. This reinforces a constructive medium-term outlook, according to a note from ICICI Securities.
Analysts expect the market to remain broadly range-bound in the near term.
“Overall, markets may remain range-bound in the near term, with stock-specific action on the back of earnings outcomes and lingering global uncertainties. Attention will shift to upcoming US economic data and commentary from Federal Reserve officials for further cues on the global macro environment and interest-rate trajectory,” said Siddhartha Khemka, Head of Research, Wealth Management, Motilal Oswal Financial Services.
Published on February 6, 2026