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A nascent recovery in Indian stocks gained momentum on Monday, as investors wagered that the worst is over following a monthslong slump that wiped off more than a trillion dollars in value.

The NSE Nifty 50 Index climbed 1.3% at the close in a sixth day of gains, erasing all its losses for 2025, as the central bank’s recent efforts to add liquidity and growing optimism over the economy revived sentiment. The rupee also erased this year’s declines.

“Confidence is coming back,” said Sonam Srivastava, founder of Wright Research in Mumbai. “There is expectation of earnings bottoming out. We are seeing a convincing recovery in various stocks and this rally definitely seems to have legs.”

A number of indicators of economic growth — including tax collections and power demand — have improved in recent weeks, boosting confidence following a selloff in stocks that started in September.

A “cyclical recovery” is underway, driven by a pickup in central government capital expenditure, a reduction in personal income taxes starting April and the central bank’s measures to improve liquidity, Citigroup Inc. analysts wrote in a research note last week.

The Nifty had dropped as much as 6.6% for the year when it set its lowest close so far in 2025 on March 4. At that point, overseas funds had pulled out more than $16 billion from the equity market.

The benchmark gauge is currently trading at about 19 times its forward earnings, in line with its 10-year average. That reading was as high as 21 times when the market peaked in September.

Foreign investors also increased their long positions in index futures, with the long-short ratio improving to 31.8%, indicating “a gradual shift towards optimism— a factor that likely boosted sentiment in today’s session,” said Sundar Kewat, technical and derivatives analyst at Ashika Stock Broking.

Also, India’s domestically-driven market is becoming attractive again due to the cooling in Chinese and US equities. Foreign outflows have tempered in recent days, supported by passive flows into the market from funds tracking FTSE Russell indexes.

Still, the momentum will be tested by the upcoming March-quarter earnings and stronger economic growth fueled by monetary reflation, according to Ankita Pathak, a fund manager at Ionic Wealth.

An “intermittent pullback can’t be ruled out even hereon,” she said.

--With assistance from Bhaskar Dutta, Chiranjivi Chakraborty and Abhishek Vishnoi.