India’s stock market has notably lagged behind other global indices over the past year. From the start of 2025 to early 2026, the Nifty 50 had a return of around 11%, which was the lowest among major indices. In contrast, South Korea’s KOSPI saw an 84% rise, Japan’s Nikkei increased by 30%, and China’s Shanghai Composite went up by 18%. Meanwhile, the Nasdaq and the S&P 500 rose by 21% and 17% respectively, and Brazil’s Bovespa grew by nearly 34%.
Since September 2024, the Nifty 50 has been mostly stagnant, leading to what can be described as a substantial “valuation reset.” During this period, while global market prices escalated, Indian stocks factored in various challenges like sluggish earnings, trade tariff issues, currency depreciation, and geopolitical strains.
Impact Of Rupee’s Devaluation
A decline of the Indian Rupee by over 8% since September 2024, reaching above 90 against the US Dollar, meant the domestic gains in Nifty were neutralised for global investors due to currency devaluation. Despite the US Dollar Index (DXY) dropping by over 9% in 2025, Indian stocks did not capitalise on this trend, missing out on potential gains noted by other markets. The Nifty’s support above 26,000 remains vital, aiming for a target of 29,000 by 2026.
Given the prolonged period of underperformance we saw through 2025, the market appears to have fully digested the bad news. The Nifty 50 has established a strong support base above the 26,000 level, creating a “coiled spring” scenario. For traders, this presents an opportunity to position for a potential catch-up rally in the coming weeks.
A straightforward strategy is to buy Nifty call options with strike prices aiming for the 29,000 target. With the index currently consolidating, February and March 2026 expiry dates offer a good balance of time and cost. This approach provides leveraged exposure to the expected upward breakout.
Recent data reinforces this bullish view, as foreign institutional investors (FIIs) have turned net buyers in the first two weeks of January 2026, with inflows crossing $1.2 billion after being net sellers for most of the last quarter of 2025. Furthermore, last week’s domestic CPI inflation print came in at 4.8%, below consensus forecasts, easing pressure on the central bank. These factors suggest that macro headwinds are beginning to fade.
Strategies For Conservative Investors
For those with a more conservative risk appetite, selling put options with strike prices at or below the 26,000 support level is an attractive strategy. This trade benefits from time decay and the expectation that the market will not break down from its current floor. We’ve seen this support level hold multiple times since late last year.
The currency dynamic we observed in 2025, where a falling Indian Rupee wiped out stock gains for dollar investors, is also critical to watch. The USD/INR has recently pulled back from its peak above 90, and a decisive move back below this level would be a strong confirmation signal for foreign capital to return. This would act as a major catalyst for the Nifty.
Implied volatility, as measured by the India VIX, is currently hovering near 14, which is significantly lower than the levels we saw during the tariff uncertainty in mid-2025. This relatively low volatility makes buying options cheaper than it was for most of last year. We saw a similar low-volatility setup just before the sharp market rallies in 2022 and 2024, suggesting a significant move could be imminent.
