The Next Trigger for Sensex and Nifty: Why Corporate Earnings Are Replacing Liquidity as Market Drivers

India's benchmark equity indices are seeing a change in market drivers. Corporate earnings growth is now replacing broad capital liquidity as the primary support needed to maintain current market levels.

While the BSE Sensex and NSE Nifty 50 have recovered to close at 78,151 and 24,334, respectively, the factors moving the market are changing. Over the past few years, strong global capital inflows and steady domestic retail inflows have expanded valuation multiples. However, changing macroeconomic conditions are forcing the market to focus more closely on actual business performance and corporate profits.

Liquidity Pressures

The nature of the liquidity supporting Indian equities has changed over the last two quarters. Geopolitical risks in West Asia and elevated U.S. Treasury yields led to an aggressive foreign capital withdrawal, with Foreign Institutional Investors selling approximately ₹1.51 lakh crore in local equities.

Domestic Institutional Investors (DIIs) largely absorbed this selling pressure, pumping in over ₹9,808 crore in a single week to stabilize the market. However, the overall volume of foreign capital entering the secondary market has slowed down. Analysts at Ventura Desk noted in a recent report that while liquidity can sustain market rallies for extended periods, long-term stability ultimately depends on consistent corporate earnings growth.

Q1 FY27 Earnings Performance

With the Nifty finding technical support near the 24,000 mark, corporate balance sheets are now expected to drive the next market movement. Early corporate reports from the first quarter of the financial year 2026–27 (Q1 FY27) show that the market is rewarding companies that deliver strong financial results. For example, Tech Mahindra came up as a major gainer, rising over 8.6% in a week after its quarterly net profit increased 28.4% year-on-year to ₹1,465 crore.

This earnings report drew varied responses from major brokerages:

Nomura and Nuvama highlighted that results exceeded consensus estimates, driven by solid deal momentum and improving margins.

HSBC raised its target price on the stock while maintaining a Buy rating.

Jefferies took a more cautious approach, keeping an Underperform rating and noting that despite the profit beat, overall valuations remain elevated.

Similarly, Tata Consultancy Services saw steady institutional interest following a positive earnings report and an annualized AI revenue projection of $2.6 billion. Near-term market direction is now expected to hinge on the banking sector following Q1 earnings announcements from major lenders like HDFC Bank and ICICI Bank.

Sector Divergence

As liquidity becomes more selective, market analysts anticipate a more fragmented environment where performance varies heavily by sector. In a liquidity-driven market, most sectors tend to rise together, including mid- and small-cap stocks. In an earnings-driven phase, a clearer gap typically forms between fundamentally stable large-caps and highly valued growth segments.

Sectors tied to domestic capital expenditure, infrastructure, and defense continue to show clear earnings visibility due to government order pipelines. On the other hand, consumer-focused companies are facing tighter margin pressures.

From a technical perspective, the Nifty's Relative Strength Index (RSI) stands at 55.80, indicating a stable underlying structure. However, market experts note that the index likely needs further positive earnings catalysts to decisively break past the 24,500 Call Open Interest resistance level and move toward the 25,000 mark.

Also read: FIIs Return to Indian Equities: Why Foreign Inflows Are Pulsing Again