The market capitalisation of listed firms on the BSE touched a record high of 161 trillion on Thursday, amid an increase in economic activity reflecting easing of lockdown curbs and tracking global cues.

The Sensex rose 470 points to 40,342 today

Benchmark indices, however, are nowhere near their record highs. Both Sensex and Nifty are down nearly 4% from the record highs touched on 14 January, when market capitalisation of BSE firms had 160.60 trillion.

This clearly indicates that the rally post March has been supported by non-index stocks or smaller stocks. From its March lows, BSE Midcap has advanced 53%, BSE SmallCap has climbed 71% while BSE 500 has risen 55%. BSE Sensex and Nifty gained around 54% each in this period.

Also, financial stocks which have a high weightage on the index have remained under pressure. Many banking stocks are also considerably lower than their January highs. Bank Nifty is down 30% from its 52-week high seen on 2 January.

So far this year, Sensex, Nifty and Bank Nifty have shed 2.3%, 2.4% and 28.7%, respectively.

"Indian banks face a tough operating environment in the near term, as stressed loans and write-offs increase as a result of the economic fallout from the coronavirus pandemic, but a swift economic recovery will be critical to limiting loan losses in what is likely to be a protracted period of weakness in the asset-quality cycle," said Fitch Ratings in 6 October report.

Recent gains in Indian stock markets are a result of combination of factors including firm macro data and expectation that the Reserve Bank of India will adopt a dovish stance after its monetary policy committee (MPC) got new members.

Brokerage firm Nomura Research estimates new external members to be more neutral-to-dovish in their policy views. However, it does not expect any immediate impact on policy rates given the high levels of inflation but believe in a dovish hold. The central bank will announce its monetary policy on 9 October.

Nomura continues to expect a cumulative 50 basis points of rate cuts as growth is likely to remain below trend and inflationary pressures subside.

Expectations of improved earnings in the September quarter, after easing of lockdown and steps by the government to support business activities, have also buoyed investor sentiment.

Analysts believe that consumer spending will likely increase from this month due to upcoming wedding and festival seasons.

"Across the sectors, the pace of recovery is solid and seems to have gone beyond filling up just the pent-up spending. This is despite the unusual tightness in lending standards in most products outside residential homes. Consumer behaviour too has changed - less impulsive but high-ticket purchases. There is some uneasiness about the sustainability of demand as the festive season fades" said brokerage firm Emkay Research in a 7 October note.

According to Brokerage firm Yes Securities, Nifty companies, excluding financials, are likely to report a profit growth of 164% quarter-on-quarter and 4.6% year-on-year. Revenue is estimated to contract of 15.8% year-on-year but grow 20.9% quarter on quarter basis.