The rally narrowed the index’s 2026 (CY26) loss to 4.9 per cent, reversing much of the 15 per cent decline recorded in the first nine months. The Sensex had ended CY25 at 85,220.6. Despite the recovery, it remained nearly 5.5 per cent below its November 2025 closing level of 85,706.7.
In contrast, the index’s underlying earnings per share (EPS) — which tracks the combined earnings of its 30 constituent companies — rose 7.2 per cent year-on-year to ₹3,929.6 on Friday, against ₹3,665.8 at the end of November last year and ₹3,667.2 at the end of September 2026.
Analysts attributed the recent rally and the accompanying expansion in valuations to softer crude oil prices and lower risk-free rates, reflected in government bond yields. “The decline in energy prices and moderation in treasury yields have improved market sentiment and triggered a risk-on trade. This could continue for some time if oil prices fall further and bond yields remain benign,” said Dhananjay Sinha, co-head of research and equity strategy at Systematix Institutional Group.
The yield on the US 10-year government bond has declined nearly 50 basis points from its 52-week high, while India’s 10-year government bond yield is down 30 basis points from its annual peak.
One basis point is one-hundredth of a percentage point.
Despite the recovery, the Sensex’s valuation remains below its long-term average. Its trailing P/E is currently nearly 13 per cent lower than its 10-year median of 23.7 times.
During previous equity bull markets, including 2004-08 and 2014-20, the Sensex had consistently traded above its long-term valuation average. By contrast, extended periods below that average, including 2001-03, 2011 to early 2014, and 2024 onwards, had coincided with weak index performance and poor returns for equity investors.
Analysts said the valuation gap suggested that Indian equities remained in a “de-rating” phase. The gap indicates that foreign portfolio investors are still re-rating Indian equities downwards and are not yet willing to pay the valuation premium they did during previous bull runs, said Sinha.
However, he added that the gap also left room for further valuation gains if market sentiment remained positive. In both 2025 and 2026, the Sensex had rebounded from relatively low valuations but corrected after its P/E approached the long-term average.
