Nifty, Sensex's gap-up start likely to sustain as short-covering, trade deal will keep bulls in control

Nifty, Sensex to sustain buying momentum through the session.

• Nifty 50 and Sensex set to open over 4 percent higher after India-US trade deal
• US cuts tariffs on India from 50% to 18%, boosting market sentiment
• Short-covering by FIIs expected to drive further gains in today's session

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Headline indices Nifty 50 and Sensex are likely to open gap-up, over four percent higher, and sustain the buying momentum through the session, according to analysts, after India and US finalized their long-awaited trade deal. US President Donald J Trump announced that the tariffs on India have been reduced from 50 percent to 18 percent.

On the fundamental side, the positive external trigger is helping markets look past the recent post-Budget volatility triggered by the Union Budget 2026–27, where the unexpected hike in STT on derivatives led to a sharp knee-jerk sell-off, said Ponmudi R, CEO of Enrich Money.

Further, short-covering from foreign institutional investors is expected to drive the market higher. On the weekly expiry session, FIIs are sitting on a bearish derivatives positioning, as the Nifty is set to open nearly three percent higher, which will set the stage for sharp short-covering.

With nearly 1.97 lakh index futures contracts sold and a sizeable 1.74 lakh index call options written, a strong gap-up opening could force traders to unwind shorts rapidly to limit losses. At the same time, FIIs are sitting on a large long position of about 4.18 lakh index put contracts, which would lose value as the market moves higher, adding to the pressure to rebalance positions.

"The current high pessimism from FIIs? It’ll get trapped in a sharp rally fueled by short covering. DIIs and retail will pile in, amplifying flows from all sides—get ready for the upside!" quipped Divam Sharma, Co-Founder and Fund Manager.

On the technical front, Milan Vaishnav, the MSTA, Founder of Gemstone Equity Research & Advisory Services in an interview to Moneycontrol said that he expects the Nifty to open directly into the 25,600-25,700 resistance zone but it would be important to see that the gap up opening is sustained.

"Further to that, it would be crucial for the markets to go back inside the original 500-point trading zone created between 26,200 and 25,700. If this happens, then the primary trend would stay intact," he added.

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