India’s stock market has struggled compared to other global markets over the past year. From early 2025 to early 2026, the Nifty 50 index gained only about 11%, the lowest among major global indices. For comparison, South Korea’s KOSPI surged by 84%, Japan’s Nikkei rose by 30%, and China’s Shanghai Composite grew by 18%. The Nasdaq and S&P 500 increased by 21% and 17% respectively, while Brazil’s Bovespa climbed nearly 34%. Since September 2024, the Nifty 50 has been mostly flat, leading to a significant “valuation reset.” During this time, while global stock prices rose, Indian stocks faced challenges like slow earnings growth, trade tariffs, currency issues, and geopolitical tensions.

Impact Of Rupee’s Devaluation

The Indian Rupee has dropped over 8% since September 2024, crossing 90 against the US Dollar. This decline neutralized local gains for international investors due to currency devaluation. Even with the US Dollar Index (DXY) falling by over 9% in 2025, Indian stocks failed to benefit from this trend and missed out on potential gains seen by other markets. It’s crucial for the Nifty to stay above 26,000, with a target of 29,000 by 2026. After a prolonged period of underperformance in 2025, the market seems to have fully absorbed the negative news. The Nifty 50 has found solid support above the 26,000 level, creating a “coiled spring” scenario. This presents traders with the chance to prepare for a potential rally in the coming weeks. A simple strategy is to buy Nifty call options targeting the 29,000 level. With the index currently stabilizing, options expiring in February and March 2026 offer a good mix of time and cost. This method provides leveraged exposure to an anticipated breakout. Recent data supports this optimistic outlook. Foreign institutional investors (FIIs) have become net buyers in the first two weeks of January 2026, with inflows surpassing $1.2 billion after being net sellers in the last quarter of 2025. Additionally, last week’s domestic CPI inflation was recorded at 4.8%, below expected levels, easing pressure on the central bank. These signs indicate that macroeconomic challenges may be improving.

Strategies For Conservative Investors

For more conservative investors, selling put options with strike prices at or below the 26,000 support level is a good strategy. This trade benefits from time decay and relies on the expectation that the market will hold steady above its current floor. We’ve seen this support level hold firm multiple times since late last year. It’s also important to monitor the currency dynamics from 2025, where a falling Indian Rupee diminished stock gains for dollar-based investors. The USD/INR has recently declined from its peak above 90, and a clear drop below this level would signal a strong return of foreign investment, acting as a major catalyst for the Nifty. Implied volatility, measured by the India VIX, is currently around 14, significantly lower than during the tariff uncertainty of mid-2025. This lower volatility makes options more affordable than for much of last year. We have observed similar low-volatility conditions prior to sharp market rallies in 2022 and 2024, suggesting that a significant market movement could be on the horizon. Create your live VT Markets account and start trading now.

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