Nifty Nears Peak, But 25 of 30 Sectoral Indices Lag Behind All-Time Highs

Sectoral Disparities Amidst Strong Rebound

The Indian stock market has shown a remarkable recovery since April 8, 2025, with both the Sensex and Nifty rising by nearly 11% from their previous lows. Despite the strong rebound, which was fueled by the tariff pause announced by U.S. President Donald Trump, market participation has been uneven. Out of nearly 30 sectoral indices, 25 are still trailing their respective all-time highs, showing significant divergence across sectors.

By May 13, 2025, both the Sensex and Nifty are hovering just 4% below their respective 52-week highs, underscoring the recovery, but also highlighting the limited participation from some sectors.

Highlights:

• Sensex and Nifty are 4% below their 52-week highs after a near 11% rebound.

• 25 out of 30 sectoral indices are still trailing their all-time highs.

• Sectors like metals, energy, auto, and real estate have shown limited participation in the rally.

Outperforming and Lagging Sectors

Despite the overall positive momentum, certain indices have shown impressive performance, while others remain significant laggards. Notably, Nifty Bank and Nifty Private Bank indices have outperformed, coming within 1.3% of their all-time highs since April 8. Similarly, the Nifty Defence and Nifty Tourism indices are within 3% of their record highs.

However, some indices are significantly underperforming. The Nifty Media index is 27% below its 52-week high, while the Nifty Realty and Nifty Energy indices are down 24% and 23%, respectively. Other major indices such as Nifty PSU, Nifty Microcap 250, and Nifty IT are also trailing by 20%, 18%, and 17%, respectively. Additionally, the Nifty Oil & Gas, Auto, FMCG, and Pharma indices are lagging by 12-18% off their 52-week highs.

Highlights:

• Nifty Bank and Nifty Private Bank indices outperform, nearing all-time highs.

• Nifty Media, Nifty Realty, and Nifty Energy underperform, lagging by 23% to 27%.

• Nifty PSU, Nifty Microcap 250, and Nifty IT indices remain 20%-18% below their recent highs.

Concerns Over Global Economic Recovery

Analysts attribute the limited participation from sectors like metals, energy, auto, and real estate to concerns over a potential slowdown in the global economic recovery. Despite a temporary pause in tariffs and easing trade tensions between the U.S. and China, these sectors have seen less enthusiasm from investors. Moreover, the IT sector has been weighed down by concerns over U.S. recession fears, soft earnings expectations, and brokerage downgrades, with the added impact of tariffs.

However, analysts are optimistic that easing U.S.-China trade tensions could offer some relief to these underperforming sectors in the near term.

Highlights:

• Metals, energy, auto, and real estate sectors lag due to concerns over global recovery.

• The IT sector underperforms due to U.S. recession fears and soft earnings expectations.

• Easing U.S.-China trade tensions could provide relief for some lagging sectors.

Foreign Investment Driving the Rally

The recent rally in the Indian market has been largely driven by foreign institutional investors (FIIs), who have been net buyers for the last 16 consecutive sessions, investing over $6 billion into Indian equities. Investor sentiment has also been boosted by geopolitical factors, such as Ukraine peace talks and the India-Pakistan ceasefire, which have tempered global risk concerns.

Optimism has been further fueled by hopes of progress in trade talks between the U.S. and China, following a 90-day tariff pause and a 115 basis points reduction in levies. Additionally, early-stage peace talks between Russia and Ukraine in Istanbul have helped reduce global risk concerns.

Highlights:

• Foreign institutional investors have invested over $6 billion in Indian equities.

• Geopolitical easing, including Ukraine peace talks and India-Pakistan ceasefire, boosts sentiment.

• U.S.-China tariff pause and potential Russia-Ukraine talks further lift market optimism.

Opportunities in Private Banks and Defence Stocks

Anil Rego, CEO of Right Horizons PMS, has expressed confidence in the potential of Indian private banks, stating that despite their robust fundamentals—such as strong capital adequacy, improving asset quality, and solid credit growth—many largecap private banks are still trading below historical Price-to-Book ratios. This valuation gap presents a compelling risk-reward opportunity for long-term investors. The ongoing capital expenditure and the likelihood of a peak in interest rates also create a favorable macro environment for these banks.

On defense stocks, Rego sees long-term potential, driven by government spending on modernization, growing export opportunities, and a policy focus on innovation and self-reliance. These factors are expected to sustain demand for Indian defense companies for the next decade.

Highlights:

• Private banks offer compelling valuation opportunities amid strong fundamentals.

• Defense stocks show long-term promise, driven by government spending and self-reliance policies.

Nifty’s Path Forward

According to Hrishikesh Yedve, AVP at Asit C Mehta Investment Intermediates, if the Nifty sustains above 24,850, it could potentially test levels around 25,200 in the short term and 25,500–25,800 in the medium term. Traders are advised to adopt a buy-on-dips strategy as long as the index holds above 24,850 on a closing basis.

Highlights:

• Nifty could test 25,200 in the short term and 25,500–25,800 in the medium term.

• Traders advised to adopt a buy-on-dips strategy if the index sustains above 24,850.