Nifty50 to hit 26,000-26,500 in next 4-5 months: Monarch Capital

Gaurav Bhandari, CEO of the firm, expects a potential shift in global macroeconomic conditions to create a more favourable environment for Indian equities. He believes a decline in US bond yields, renewed weakness in the dollar and a revival in global capital flows could support a recovery in domestic markets.

According to Bhandari, a combination of easing financial conditions overseas, shifting investor allocations and domestic liquidity could drive the next leg of the Indian market rally.

Record US Bond Yields

The US 10-year Treasury yield have climbed to 5.35%, highest level in 24 years, after rising 110 basis points in calendar year 2026. Bhandari believes such elevated borrowing costs are becoming increasingly difficult for the US economy to sustain.

With US government debt exceeding $35 trillion, annual interest payments are estimated at nearly $1.8 trillion, surpassing the country's defence spending.

Meanwhile, the 30-year US mortgage rate has reached 7.03%, putting further pressure on housing affordability and weighing on activity in the property market.

Historical trends also offer a potential point of reference. The previous instances in 2002 and 2007, when the 10-year Treasury yield crossed 5.25%, were followed by declines of 40-60% in yields over the subsequent 18 months.

Bhandari expects the current high-yield environment to prove unsustainable, arguing that elevated borrowing costs are placing increasing strain on the US economy.

“The yield at 5.35% is not a new normal; it is the peak of an extreme that is already breaking the US economy from the inside,” he said.

He expects a potential reversal in US yields to eventually redirect global liquidity towards equity markets, including India.

US Twin Deficits

The US is grappling with a fiscal deficit of around 6-7% of GDP alongside a persistent trade deficit. Bhandari believes this combination of twin deficits has historically preceded significant periods of dollar weakness.

The US Dollar Index has already slipped below the 100 mark once in 2026. He expects further weakness, with the index potentially moving towards 95.

A depreciating dollar could encourage global investors to increase their exposure to emerging markets as they reassess geographic allocations. According to Bhandari, Indian equities could benefit from such a shift, given their historical performance during previous periods of dollar weakness.

Recovery in Equities 

Another potential source of support is the $6.3 trillion held in US money market funds. Bhandari believes that declining yields could reduce the relative attractiveness of these instruments, encouraging investors to move towards higher-risk assets in search of better returns.

The unwinding of global carry trades could further accelerate capital movements across markets.

He expects falling US Treasury yields and a weaker dollar to create a broader improvement in global liquidity conditions. This could encourage foreign institutional investors (FIIs) to increase their exposure to Indian equities.

The positioning of overseas investors could provide an additional trigger. With FIIs holding substantial short positions in Indian equity futures, a positive shift in sentiment could prompt short covering, adding to buying momentum.

FII Short Covering and Domestic Inflows

Bhandari outlined a potential sequence of developments that could strengthen Indian markets: declining US bond yields, further dollar weakness, a rotation of capital away from money market funds, FII short covering and sustained domestic investment flows.

Domestic inflows of around Rs 31,000 crore per month could provide an additional cushion for the market as global conditions improve.

If these factors come together, Indian equities could see a valuation re-rating, with multiples potentially expanding from 18 times to 22-24 times, according to Bhandari.

However, the extent of any re-rating would depend on the evolution of global financial conditions, the direction of foreign flows and the sustainability of domestic investment.

Nifty Target at 26,000-26,500 in 4-5 Months

Bhandari has set a target of 26,000-26,500 for the Nifty over the next four to five months, reflecting his expectation of improving global liquidity and a potential revival in foreign investor participation.

Against this backdrop, he believes investors should consider selective buying in fundamentally strong, high-quality stocks rather than adopt an overly defensive approach.

The outlook, however, remains contingent on a reversal in US yields, further weakness in the dollar and a sustained improvement in capital flows. Any delay in these developments could affect the timing and scale of a recovery in Indian equities.