Led by short covering, Dalal Street roared back to life in dramatic fashion on Monday, with the Sensex vaulting over 2,900 points and the Nifty surging past 24,900, notching gains of more than 3.5%. The rally took both indices to their highest levels since December 16, 2024. The trigger? A surprise ceasefire agreement between India and Pakistan after four tense days of military hostilities.

The rally was further supported by global tailwinds, including a thaw in U.S.-China tariff tensions and unexpected progress in Russia-Ukraine ceasefire talks.

“The ceasefire between India and Pakistan has paved the way for a sharp rally in the market,” said Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services. He emphasized that the rally was not merely sentiment-driven but was underpinned by sustained foreign fund inflows.

“The prime mover of the rally will be FII buying, which has been sustained for sixteen continuous sessions, barring last Friday when the conflict escalated. That kind of consistency speaks volumes.”

Vijayakumar also pointed to a convergence of strong domestic macros, including robust GDP expectations for FY26, a revival in corporate earnings, and a continued decline in inflation and interest rates.

“This is not just a bounce. These are the building blocks of a rally that can extend,” he added.

Among Nifty bluechips, Adani Enterprises, Infosys, HCL Tech, and Wipro were up over 6% each, while smallcaps like Netweb Tech, Syrma, Reliance Power, and MapMyIndia jumped at least 10%.

Markets are reacting not just to recent relief, but also to future prospects. The U.S. and China have agreed to drastically roll back tariffs on each other’s goods for an initial 90-day period. Separately, hopes of peace talks between Russia and Ukraine are helping soothe investor nerves globally.

“The market is trading higher today, driven by a wave of favorable geopolitical developments that have underpinned overall investor optimism,” said Swapnil Aggarwal, Director at VSRK Capital.

“The India-Pakistan ceasefire was the first spark. Then came signals of de-escalation in Russia-Ukraine tensions and renewed dialogue on global trade. It’s all created a powerful risk-on mood.”

But is this rally built to last?

Manish Goel, Founder and MD of Equentis Wealth Advisory Services, urged caution but not fear.

“The fundamentals of our country are very strong. Recent inflation and PMI data reaffirm the strength of India’s macroeconomy. Yes, global events like the Trump tariff announcements and the India-Pakistan border escalation triggered volatility over the past 30–45 days. However, such episodes, though unsettling, rarely alter India’s long-term growth trajectory.”

Goel believes volatility should be seen as an opportunity, not a threat.

“History shows markets correct nearly every year—yet they recover, often swiftly. Investors who treat these dips as buying opportunities, not exit signals, tend to benefit the most.”

He advises keeping around 10% of a portfolio in cash or low-volatility instruments, ready to be deployed when fear drives prices lower.

“It’s not about timing the market—it’s about being prepared to act when it matters most. The market is like a battlefield. If you wait until peace is declared, you’ve already missed the gains.”

Risks on the radar

Still, risks remain. One sector already flashing warning signs is pharma. Vijayakumar pointed to pressure on Indian drugmakers following President Trump’s renewed push to reduce drug prices in the U.S., a key export market.

“Margins could be squeezed in the near term. Pharma may lag the broader rally,” he warned.

Others believe that while the rally is based on real developments, it may overshoot in the short term.

“Traders tend to get over enthusiastic when uncertainty fades,” said a senior equity strategist at a foreign brokerage, requesting anonymity. “We’ve seen this before—sharp relief rallies that later consolidate. That said, the buying has been broad-based, and institutional flows are looking sticky.”

As the market stands at the crossroads of geopolitical détente and economic inflection, investors are left to decode the next move. The mood is bullish, the screens are green, and—for now—fear has taken a back seat.