Indian equities opened the week on a strong footing, with benchmark indices advancing sharply in morning trade as investors continued rotating back into risk assets after a prolonged phase of volatility and cautious positioning. The Nifty moved closer to the 24,000 mark while broader markets outperformed once again, signalling a meaningful improvement in sentiment across Dalal Street.

The latest recovery comes after several months of pressure on Indian equities caused by sustained foreign institutional selling, concerns around stretched valuations, slowing earnings momentum and fears of a wider geopolitical escalation globally. Midcap and smallcap stocks had witnessed particularly sharp corrections during the earlier phase of the selloff, with investors questioning whether elevated valuations across segments could trigger a much deeper market reset.

Yet the rebound seen over recent sessions has altered market psychology considerably. Investors are increasingly beginning to believe that the most intense phase of the correction may already be over, especially as multiple macro pressures have started stabilising simultaneously.

A major factor supporting the Indian market continues to be the resilience of domestic liquidity. Despite volatile returns over the past two years, systematic investment plan inflows have remained steady while retirement-linked flows and institutional domestic allocations continue entering equities consistently. This has created a structural demand cushion that has repeatedly absorbed foreign outflows.

The strength of domestic participation marks a significant shift from earlier market cycles when both foreign and local investors typically reduced exposure simultaneously during periods of uncertainty. This time, domestic money has played the role of a stabiliser, limiting downside pressure even during phases of aggressive foreign selling.

Market positioning also appears to have shifted materially from the extreme pessimism witnessed during March and April. During that phase, institutional positioning had turned defensive, broader markets corrected sharply and sentiment indicators reflected widespread caution. Mutual funds were also holding elevated cash levels amid fears of further downside.

The reversal began once geopolitical concerns showed signs of moderation and crude oil prices stopped witnessing runaway gains. That triggered renewed buying interest in sectors and stocks that had seen heavy selling pressure earlier. The pace of the rebound itself suggests that panic-driven unwinding and forced selling may have already played out to a significant extent.

Importantly, the earnings backdrop has also remained more stable than many investors had feared. While corporate profit growth has moderated compared to the post-pandemic recovery years, there is still no broad-based earnings collapse across India Inc. Several pockets of the economy continue to display healthy investment activity and order inflows.

Sectors linked to industrials, capital goods, power, telecom and utilities continue to benefit from ongoing infrastructure spending, manufacturing investments and public-sector capex momentum. This has prevented the market from slipping into a full earnings-led bear cycle despite weakness in certain consumption-oriented areas.

The improvement in global risk appetite has further supported the recovery. Investors globally have become less fearful of an immediate macroeconomic shock as expectations around eventual interest-rate cuts by major central banks remain alive. Stabilising economic indicators in the United States and easing fears of a broader conflict in West Asia have also improved sentiment toward emerging-market assets.

India has benefited from this broader global shift even though foreign investors continue to remain selective in their allocations. Risk appetite has improved particularly in sectors tied to domestic growth themes rather than purely export-driven stories.

However, the current recovery has not fully eliminated concerns around valuations. Even after the correction witnessed in broader markets, Indian equities continue to trade at a premium compared with several other emerging and developed markets. That premium has remained a key concern for foreign institutional investors who continue to question whether earnings growth can sustain current market multiples.

There are also emerging concerns around margin pressures in some sectors, uneven rural consumption trends and the impact of slowing global demand on export-linked businesses. Any deterioration in global growth expectations or another spike in commodity prices could once again revive volatility across equities.

As a result, many market participants believe the current phase may not resemble the broad-based bull market seen during earlier liquidity-driven rallies. Instead, markets may enter a more rotational and selective phase where abundant domestic liquidity continues supporting dips, but sector leadership changes frequently and stock-specific fundamentals become increasingly important.