The opening weeks of 2026 have underscored just how tightly geopolitics and financial markets are now intertwined. In the first 35 days of the year alone, a series of high-impact global events unfolded, keeping investors, policymakers, and market participants on constant alert. The pace and intensity of developments suggest that 2026 is shaping up to be anything but a quiet year for global markets.
One of the most dramatic events was the capture of Venezuelan President Nicolás Maduro by US officials and his subsequent transfer to the United States to face trial. Even as markets were digesting this unprecedented move, fresh geopolitical tensions emerged. President Donald Trump openly threatened the use of military power to acquire Greenland, a statement that immediately created friction between the United States and the European Union. Simultaneously, the US administration encouraged Iranian citizens to protest against their regime and, at one point, even hinted at the possibility of direct military intervention. Together, these actions significantly elevated geopolitical risk premiums across asset classes.
The US policy developments added another layer of uncertainty. Trump kept markets engaged—and unsettled—by initiating a criminal investigation against Federal Reserve Chair Jerome Powell, who is scheduled to step down on 15 May. This raised concerns about institutional independence and policy continuity at a time when global markets are already grappling with elevated volatility. Adding to this was a sharp escalation in trade rhetoric: a senior US official threatened to impose a punitive 500% tariff on India for continuing to purchase Russian oil. Interestingly, within weeks of this statement, reports emerged suggesting that the US and India were close to signing a tariff-related agreement. While the finer details remain unclear, this issue has weighed heavily on market sentiment. Although equities initially reacted positively, greater clarity is essential to assess the real economic and sectoral impact. Zero-duty access for US goods could pose challenges for certain domestic industries, while any disruption to Russian oil imports may push India’s crude oil basket prices higher, with broader inflationary implications.
Against this backdrop, India achieved a significant diplomatic and economic milestone by concluding a Free Trade Agreement (FTA) with the European Union. This development has meaningfully boosted confidence among Indian exporters and strengthened the medium-term outlook for the domestic economy. While the agreement will take time to become fully operational—our assessment suggests implementation between the end of 2026 and the first half of 2027—the strategic importance of this deal is very significant. If both the EU-India FTA and the proposed US-India trade agreement come into force, the Indian economy stands to benefit substantially. New export avenues for India Inc would open up, improving capacity utilisation, profitability, and overall business confidence.
Expectations from the Union Budget were high, particularly given subdued market sentiment leading up to the announcement. There was widespread hope that the government might offer relief through concessions on capital gains taxation or a reduction in Securities Transaction Tax (STT). However, neither materialised. Instead, the increase in STT on derivatives trading initially spooked market sentiment. Fortunately, this weakness proved short-lived, as markets recovered sharply following renewed optimism around the prospective US trade deal.
From a broader perspective, the underlying trajectory of the Indian economy and equity markets remains constructive. The government continues to push structural reforms, and current estimates suggest that India’s GDP growth in FY2027 could approach the 7% mark. This figure may evolve depending on the timing and effectiveness of key trade agreements. Encouragingly, December-quarter earnings for India Inc have exceeded expectations. Despite absorbing the impact of the new labour code, net profit growth remained in double digits. This addresses, at least partially, earlier concerns around earnings momentum.
The combination of improving earnings visibility, progress on trade agreements, and reasonable market valuations creates a favourable backdrop for foreign portfolio investors. This is particularly noteworthy given that FPIs were net sellers of approximately ₹36,000 crore in January. Recent data, however, suggests a shift in behaviour. NSE cash market volumes have reached their highest levels in the past 12 months, indicating renewed investor participation and confidence. In essence, the Indian equity market appears to be forming a strong base for the next leg of its upward journey. As news flow continues to improve, markets are likely to inch higher over time.
Another important development supporting equities is the heightened volatility in gold and silver prices. For several months, precious metals dominated investor discussions due to their relentless upward momentum, often at the expense of equities. That dynamic is now changing. With increased volatility in gold and silver, equity has once again returned to the centre of investment conversations.
Against this backdrop, our advice to investors is to gradually increase equity allocations, while remaining disciplined. Investors should avoid leveraging or dipping into emergency funds. Our conviction that the Nifty 50 can deliver returns in the range of 15–20% has strengthened, supported by multiple positive developments across macroeconomics, earnings, and global trade. While volatility is likely to persist, the balance of risks appears skewed towards the upside. In our view, the bulls are not far away.