Market Watch

Equity Market Overview January 2026


  • Domestic Equity Market Update
  • Indian equities ended the month on a negative note. Large cap-oriented BSE Sensex ended lower by 3.5% (MoM) and Nifty 50 ended lower by 3.1% (MoM). While the BSE Midcap index ended lower by 3.8%(MoM) and BSE Small cap index ended lower by 6.3% (MoM).
  • In terms of BSE sectoral indices, the sectors ended on a mixed note. Metal and Bankex were the outperformers during the month.
  • During the month, FPIs were net sellers in equities to the tune of Rs 304 bn. (Data as on 29th January). 
  • Domestic equity markets ended the month on a negative note though there was optimism over the landmark India–EU free trade agreement and supportive cues from the government’s Economic Survey, the budget announcements led to massive selloff as STT hike dented the overall sentiments. Losses stemming from rising crude oil prices, persistent foreign fund outflows, a weaker rupee, mixed corporate earnings and geopolitical uncertainty and concerns over the United States (US) imposing fresh tariffs also dented the market performance during the month.
  • Global Market Updates
  • US equity markets ended the month on a positive note as strength on Wall Street reflected a positive reaction to the Labor Department's closely watched employment report for Dec 2025. However, gains were offset as stronger-than-expected Dec 2025 producer inflation renewed worries about price pressures and rising geopolitical tensions worldwide. Sentiment was further hurt by uncertainty over US–Europe trade relations, the President’s threat of a 50% tariff on Canadian aircraft after a certification dispute over certain Gulfstream jets and rising geopolitical tensions also added to the market weakness.
  • European equity markets ended the month on a mixed note supported by corporate updates and expectations of further interest rate cuts by the Federal Reserve. The US Labor Department's data indicating slower-than-expected job growth in Dec 2025 added to this optimism. Trade war concerns, geopolitical tensions and continued uncertainty surrounding French budget negotiations further weighed on market sentiment.
  • Brent oil prices rose from USD 60.85 per barrel to USD 70.69 during the month following a winter storm that disrupted crude production facilities along the Gulf Coast, halting exports, renewed tariff threats from the US President against European nations, US’s interest in acquiring Greenland, which resulted in declining dollar index and amid supply concerns stemming from ongoing geopolitical tensions.
  • Most of the Domestic Macro data points showed a strong picture
  • The Economic Survey 2025-26 said that the Indian economy can grow at 6.8-7.2% YoY in FY27, supported by strong macro fundamentals and a series of regulatory reforms.
  • According to the first advance estimates released by the NSO, India’s economy is expected to grow 7.4% YoY in FY26, exceeding the government’s earlier projection of 6.3–6.8% YoY.
  • The IMF revised India’s FY27 Gross Domestic Product (GDP) growth forecast upwards by 20 bps to 6.4% YoY from its October 2025 projection.
  • As per the United Nations (UN), India’s economy is projected to grow 6.6% YoY in FY27, supported by resilient consumption and strong public investment.
  • The World Bank upgraded its FY27 growth forecast for India to 6.5% YoY from 6.3% YoY projected in October 2025 on the back of firmer domestic demand and export performance, which has proved more resilient than earlier expected. Compared to its forecast in June 2025, however, the growth projection for FY27 has remained unchanged.
  • As per Internal government projections, India’s national highway toll collections are projected to breach the landmark Rs 1 trillion mark in FY27 and a 25% YoY jump in revenue to Rs 750 bn in FY26, up from Rs 614.08 bn in FY25.
  • The European Union announced that a landmark trade deal with India will slash duties on over 90% of EU goods. This historic agreement could save member nations up to 4 bn euros in taxes on European products.
  • A survey by industry body Confederation of Indian Industry (CII) showed that the CII Business Confidence Index (BCI) rose for the third consecutive quarter to 66.5 in Q3 FY26.
  • As per the latest SIAM data, automobile exports from India rose 24% YoY in CY 2025 driven by robust demand for cars, two wheelers and commercial vehicles in the overseas markets.
  • As per the commerce department showed that India exported goods worth USD 38.51 bn in December 2025, up 1.8% YoY despite geopolitical challenges.
  • Flash survey results from S&P Global showed that the HSBC flash composite output index rose to 59.5 in January 2026 from 57.8 in December 2025.
  • According to data compiled by S&P Global, HSBC’s India Manufacturing Purchasing Managers' Index (PMI) fell to 55 in December 2025 from 56.6 in November 2025.
  • Final data compiled by S&P Global showed that the seasonally adjusted HSBC India Services PMI dropped to 58.0 in December 2025 from 59.8 in November 2025.
  • According to a report by consulting firm PwC, Artificial Intelligence (AI) could add around USD 550 bn to India’s economy by 2035. The report says AI will play a major role in driving growth across key sectors such as agriculture, healthcare, energy, education, and manufacturing.
  • Data released by the Ministry of Statistics and Programme Implementation (MoSPI) showed that India’s Industrial Output, as measured by the Index of Industrial Production (IIP), stood at 7.8% YoY in December 2025.
  • As per data released by the Commerce and Industry Ministry, India’s core sectors’ output surged to its highest level in FY26 in December 2025, even as growth improved to a four-month high of 3.7% YoY from an upgraded 2.1% YoY uptick in November 2025.
  • As per Internal government projections, India’s national highway toll collections are projected to breach the landmark Rs 1 trillion mark in FY27 and a 25% YoY jump in revenue to Rs 750 bn in FY26, up from Rs 614.08 bn in FY25.
  • According to a report by Crisil Ratings, Assets Under Management (AUM) of non-banking financial companies (NBFCs) specialising in gold loans are projected to cross Rs 4 trillion by March 2027, supported by elevated gold prices, a growing preference for secured credit and regulatory easing.
  • Union minister Ashwini Vaishnaw has said that electronics exports have crossed Rs 4 trillion in 2025 and are expected to grow when four semiconductor plants begin production in 2026. According to official estimates, electronic production reached around Rs 11.3 crore and exports were to the tune of Rs 3.3 trillion in FY25.
  • According to Knight Frank, housing sales fell 1% YoY to over 3.48 lakh units across eight major cities, with demand stagnating amid an average price rise of up to 19% YoY.
  • From Nifty 200 universe, 115 companies have announced their Q3 FY26 earnings thus far. At an aggregate level, Sales, EBITDA and PAT have grown by 9.56%, 11.07% and 3.67% YoY, respectively. Excluding Financials, Sales, EBITDA and PAT have grown by 11.28%, 11.40% and 2.36% YoY respectively.
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  • From Nifty 500 universe, 244 companies have announced their Q3 FY26 earnings thus far. At an aggregate level, Sales, EBITDA and PAT have grown by 9.49%, 13.20% and 7.34% YoY, respectively. Excluding Financials, Sales, EBITDA and PAT have grown by 11.10%, 12.78% and 7.57% YoY respectively.
  • Outlook & Investment Strategy
  • Going forward, the Indian equity market is likely to be driven by any moves around the India-US trade deal, Q3 FY26 earnings outcome, movement in the US Dollar index and INR, improvement in consumption demand during the wedding season, FPI/DII flows, and moves to support liquidity by the RBI. With the India-US trade deal still not cleared, the currency has seen high volatility, though some likely intervention by the central bank has helped, volatility persists. Optimism about more monetary easing by the Federal Reserve could lift market sentiments, though headwinds like FII selling, heightened volatility and downside risks from renewed geopolitical uncertainties, and doubt over the US-India trade deal continue to linger. India – Europe deal could be positive in the longer-term as diversification in terms of export destinations should aid economic growth. For the equity investor, the message from FY27 budget is stable and positive: the government is strengthening its balance sheet while actively fostering a business-friendly environment, making India a prime destination for long-term capital.
  • The earnings trajectory in India is likely to be troughing out in Q3 FY26 and sustained pickup from there is likely to drive the equity markets. Improvement in the bank lending growth is also suggestive of the gradual pickup in demand in the economy. The Indian equity markets could see improved earnings performance, driven by better liquidity, higher nominal growth, stable rural demand, pent-up urban demand and policy support by the government.
  • As earning growth starts to pick up (which remains a key monitorable), in India, strong global liquidity driven by the US Fed and sustained weakness in the Dollar index may ensure that the FPI flows start to turn back positive. While in CY25 we have seen overall returns from the equity markets moderating, we expect better performance in CY26 at an aggregate level. On the valuations front, Large caps still look better than Mid caps which in turn look better than small caps.
  • CY26 could be marked by global economies and risk assets factoring in the actions by the various central banks, especially the US Federal Reserve, in terms of providing liquidity support to defend their bond yields and growth. The reaction function to the tariffs by the US on China and the EU would be a key monitorable in terms of the space that opens up for Indian corporates.
  • Overall, the fundamentals of the domestic economy remain robust, with a strong current account, calibrated fiscal consolidation and stable private consumption. From here on, the Indian equity markets are likely to be driven by corporate earnings performance and upcoming macro-economic data points. In the context of decelerating private capex, the targeted approach of the budget towards investment demand and consumption is likely to drive an improvement in growth. With fiscal consolidation remaining on track, some heavy lifting is now expected from the RBI in terms of sharply improving the liquidity conditions in the economy. Also, in the context of the fast-evolving geo-economics with US trade deal yet to fructify, emergence of multiple power axes in the world, overall global trade could see volatility, and, to that extent, the outcome of the budget proposals remains monitorable. In terms of deployment strategy, we continue to maintain our investment deployment strategy of 50% Lumpsum and 50% staggered over the next 5-6 months. From an Equity Mutual Fund perspective, investors could look at investing in Largecap funds, Flexicap funds, Hybrid equity funds, Business cycle funds and doing STPs in Multicap/Midcap funds in line with their risk profile and product suitability from a 2-3 years’ time horizon.



Debt Market Overview January 2026





Domestic Equity Market Update
Banking system liquidity as measured by the Reserve Bank of India’s (RBI) net Liquidity Adjustment Facility (LAF) stood at a daily average surplus of ~Rs 620 bn in January 2026 as against a daily average surplus of ~Rs 725 bn in the previous month. The call money market traded in the range of ~4.75-5.60% during the month.

 

Domestic G-sec yields closed higher in January 2026, and the 10-year benchmark, 6.48% G-Sec 2035 bond, ended at 6.70% compared to the previous month’s close of 6.59%. Indian G-sec yields rose as the Bloomberg Index Services deferred India’s inclusion in its flagship Global Aggregate Index, triggering an unwinding of trades built on that expectation. Losses deepened as market participants remain concerned about the market’s capacity to absorb a record debt issuance of around Rs. 8 trillion in Q4 FY26, including Rs. 5 trillion from States. Losses were capped owing to RBI’s OMO auction announcements which were staggered across the month.

 

Consumer Prices in US came in at 2.7% YoY in December 2025, unchanged from November 2025. The core consumer prices were also unchanged at 2.6% YoY. The US Federal Reserve announced its widely expected decision to leave rates unchanged in its first monetary policy meeting of 2026. The Fed said it decided to maintain the target range for the Federal Funds Rate at 3.50% to 3.75% amid elevated uncertainty about the economic outlook. The US Real Gross Domestic Product spiked by 4.4% YoY in Q3 CY25 compared to the previously reported 4.3% YoY surge. Harmonized Index of Consumer Prices of Eurozone rose by revised 1.9% YoY in December 2025, following an increase of 2.1% YoY in each of the previous two months. Eurostat initially reported that inflation hit the 2% YoY target in December 2025. Consumer Prices in China were up 0.8% YoY in December 2025 versus 0.7% YoY increase in November 2025. China's annual consumer price inflation accelerated to a 34-month high, driven by rising food prices. China’s GDP rose 4.5% YoY in Q4 CY25 which was in line with expectations and slowed from 4.8% YoY in Q3 CY25. The People's Bank of China kept its one-year loan prime rate unchanged at 3.0%, as widely expected. Likewise, the five-year LPR, the benchmark for mortgage rates, was maintained at 3.50%.

 

India’s retail inflation, measured by the Consumer Price Index (CPI), accelerated to 1.33% YoY in December 2025 from 0.71% YoY in November 2025, staying below RBI’s lower band of inflation target. Core CPI inflation moved up to 4.63% YoY in December 2025 as against 4.34% YoY in the previous month. India’s Wholesale Price Index (WPI) climbed to an eight-month high of 0.83% YoY in December 2025 compared with -0.32% YoY in November 2025, snapping a two-month deflationary spell. India exported goods worth USD 38.51 bn in December 2025, up 1.8% YoY despite geopolitical challenges. Inbound shipments increased by 8.7% YoY to USD 63.55 bn, resulting in a trade deficit of USD 25 bn compared to USD 20.63 bn in December 2024. India's fiscal deficit for FY26 through December 2025 stood at Rs 8.55 trillion, or 54.5% of annual estimates. The Centre’s net direct tax collections for FY26 rose 8.8 % YoY to Rs 18.38 trillion as of January 11, 2026, largely due to a moderation in refunds. The growth is lower than the 12.6% increase projected in the FY26 Budget. Gross direct tax collections stood at nearly Rs 21.5 trillion, up 4.14 % YoY. Non-corporate tax collections rose to about Rs 9.3 trillion on a net basis, compared with Rs 8.74 trillion a year ago. Net corporate tax collections increased to Rs 8.63 trillion from Rs 7.68 trillion. Collections from the Securities Transaction Tax (STT) remained broadly flat at Rs 448.67 bn against Rs 445.38 crore in the same period last year. Receipts from other taxes fell sharply to Rs 3.21 bn, compared with Rs 28.19 bn a year ago. India’s Gross Goods and Services Tax (GST) collections reached Rs 1.93 trillion in January 2026, up 6.2% YoY. The net GST revenue for January 2026 stood at Rs 1.71 trillion, up 7.6% YoY. On a FYTD basis, gross collections rose to Rs 18.43 trillion, marking a robust 8.3% YoY growth and net revenue reached Rs 15.96 trillion, growing 6.8% YoY.

 

The liquidity condition, as measured by RBI’s net LAF, deteriorated during the month, but remained in surplus. In its December 2025 MPC meeting, the RBI had reduced the Repo Rate by 25 bps to 5.25% from 5.50% and continued with its neutral stance. The RBI had also revised its inflation outlook for FY26 downward to 2.0% from 2.6% projected earlier while upwardly revising their growth projection to 7.3% from 6.8% earlier. India’s retail inflation, measured by the Consumer Price Index (CPI), accelerated to 1.33% YoY in December 2025, from 0.71% YoY in November 2025. Core CPI inflation accelerated to 4.63% YoY. Given INR’s continuous depreciation against the USD, the RBI had to defend it via forex interventions which affected system liquidity. The RBI announced preponement of the OMO purchase auction for an aggregate amount of Rs 1 trillion to January 29 and February 5, 2026, instead of earlier announced dates of February 5 and 12, 2026, respectively. The strong durable liquidity support along with a favorable inflation print means that in case growth falters, there remains enough scope for further policy easing depending on future growth-inflation dynamics. Due to the marginally higher borrowing announced in the Union Budget compared to market expectations, bond market reacted negatively. However, as overall budget has continued moving towards fiscal consolidation, and basis probable return of FPIs on aggregate, it may lead to favorable demand supply dynamics, resulting in pulling down of yields.  In the US, as widely anticipated, the Federal Reserve kept rates unchanged in the January Policy meeting, keeping their target range to 3.50-3.75%. President Donald Trump nominated Kevin Warsh to succeed Jerome Powell as the next Fed Chairman. Going forward, any further development around the same may provide direction to Fed’s future rate setting path and have a bearing on Indian bond yields and direct capital flows.

The conservative and credible Budget numbers provide confidence that the mentioned fiscal numbers will be achieved. Hence, in case growth picks up, aiding in tax collection, we may see positive upside in the debt yields during latter half of CY27. Thus, at this juncture, with lucrative yields, a case continues to exist for investment into corporate bond funds that are at the 1-4-year segment of the curve. Hence, investors can look at Corporate Bond Funds for a horizon of 15 months and above. For a horizon of 24 months and above, investors may consider Income Plus Arbitrage FoF or consider Dynamic Bond Funds for tactical opportunity. As yields in the less than 1 year segment remain tight, for a horizon of 3 months and above investors can consider Arbitrage Funds, Money Market Funds and Ultra Short duration Funds. Whereas for a horizon of up to 3 months, investors can consider Overnight Funds and Liquid Funds. Investors should invest in line with their risk profile and product suitability.

 

 

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