Nifty Hits Record 26,340: 5 Factors Driving the 2026 Market Rally

Nifty 50 Reaches New Milestone to Start 2026

The Indian stock market began the first week of 2026 with significant momentum, as the benchmark Nifty 50 index surged to a fresh all-time high. On January 2, the 50-stock index touched an intraday peak of 26,340, surpassing its previous record of 26,325.80 set on December 1, 2025. The market sustained its gains, with the Nifty 50 closing at 26,328.55, up 182 points or 0.70%. The BSE Sensex also participated in the rally, gaining 573.41 points to close at 85,762.01, although it remained slightly below its own record high from late 2025. The broad-based buying across multiple sectors signalled strong investor confidence and a robust start to the new calendar year.

Sectoral Leaders and Laggards

The rally was not confined to a few heavyweights but was spread across the market. Fifteen of the sixteen major sectoral indices ended the day in positive territory. The Realty and Metal sectors were among the top performers, with the Nifty Realty index climbing 1.52% and the Nifty Metal index gaining over 1%. These gains were attributed to renewed investor interest in property markets and a recovery in global industrial demand. The Auto sector also advanced 1.2%, supported by strong December sales figures reported by major manufacturers. Banking stocks were pivotal, with the Nifty Bank index hitting a fresh record high of 60,204 before settling at 60,150.95. In stark contrast, the FMCG sector was the only one to end in the red. The decline was almost entirely due to a sharp sell-off in ITC shares, which dragged the index down.

Why ITC Weighed on the FMCG Index

While the broader market celebrated new highs, ITC, a major component of the FMCG index, faced significant selling pressure. The stock plummeted nearly 10% intraday after the government announced a substantial hike in excise duties on cigarettes, effective February 1, 2026. The new tax structure, which imposes duties ranging from Rs 2,050 to Rs 8,500 per 1,000 sticks, prompted a wave of analyst downgrades. Concerns over the potential impact on the company's operating margins and cigarette sales volumes led to widespread profit-booking, making it the top loser on the Nifty 50 and causing the entire FMCG sector to underperform.

Key Stocks in Focus

Several individual stocks made headlines during the record-setting session. Coal India was the top gainer on the Nifty, surging over 7% to a 52-week high. The rally followed the company's decision to permit direct participation of foreign buyers from neighbouring countries in its e-auctions, a move expected to boost demand. Infrastructure major Larsen & Toubro (L&T) also hit a new record high of Rs 4,164.20 after securing major orders from the Steel Authority of India (SAIL) for its expansion projects. Heavyweights such as HDFC Bank, ICICI Bank, and Reliance Industries were the largest contributors to the Nifty's gains. In the automotive space, Hero MotoCorp and TVS Motor rose 1.6% and 1.5% respectively, following the release of solid December sales data.

Core Factors Fuelling the Rally

Analysts have identified several key drivers behind the market's bullish momentum:

1. Positive Corporate Updates: An optimistic outlook for the upcoming Q3 earnings season has lifted sentiment. Early corporate updates suggest an earnings upgrade cycle may be starting, providing a durable foundation for the rally.
2. Strong Economic Indicators: Recent data has been encouraging. GST collections for December 2025 grew 6.1% year-on-year to Rs 1.75 lakh crore, indicating robust economic activity.
3. Broad Market Participation: The rally's strength was confirmed by the performance of broader markets. The Nifty Midcap 100 and Smallcap 100 indices also ended in the green, with the advance-decline ratio clearly favouring bulls. On the BSE, 2,772 stocks advanced while 1,449 declined.
4. Support from Domestic Investors: While Foreign Institutional Investors (FIIs) started the year as net sellers, offloading Rs 3,268.60 crore, Domestic Institutional Investors (DIIs) provided a strong cushion by purchasing equities worth Rs 1,525.89 crore. This domestic support has been crucial in sustaining market levels.
5. Pre-Budget Optimism: With the Union Budget on the horizon, investors are anticipating further economic reforms and stimulus measures that could support growth and corporate earnings.

Key Market Data Summary

Market Outlook and Analysis

With the market successfully starting the year on a high note, the focus now shifts to upcoming catalysts. The Q3 earnings season, set to begin shortly, will be critical in determining the market's near-term direction. Investors will be watching for confirmation that the anticipated earnings recovery is materializing. Furthermore, announcements and expectations leading up to the Union Budget will likely influence sentiment. While the India VIX, a measure of volatility, edged slightly higher to 9.45, its overall low level suggests that market participants remain confident. Analysts believe that as long as the Nifty holds above the crucial 26,100 support level, the underlying structure remains constructive for further gains in the weeks ahead.