Mumbai, Feb 27: According to Bajaj Finserv AMC Indian equity markets have begun 2026 on a volatile note, echoing the sharp correction and risk aversion seen in early 2025, though this time against a relatively stronger domestic macro backdrop.
Until recently, markets were grappling with steep US tariffs, heightened geopolitical concerns and persistent FPI outflows. According to Siddharth Chaudhary, Head-Fixed Income, Bajaj Finserv AMC, this combination had briefly pushed the rupee to an all-time low despite a supportive domestic environment of steady growth and moderate inflation. “However, sentiment improved meaningfully following the back-to-back developments, particularly the India–US trade announcements, leading to a swift recovery in the rupee,” he noted.
Against this backdrop, progress on India–US trade negotiations has emerged as a key sentiment driver. Sorbh Gupta, Head-Equity, Bajaj Finserv AMC, said,
“While earlier negotiations had pointed to a breakthrough, with US tariffs on Indian goods set to ease from punitive levels of around 50 per cent to about 18 per cent, a recent ruling by the US Supreme Court has reshaped the tariff framework. Following the court’s decision to strike down the earlier regime, the US has shifted to a temporary, uniform tariff of around 15 per cent, which is lower than both last year’s peak rates and the interim 18 per cent discussed during negotiations,” he noted, adding that the frequent legal and policy recalibration around tariffs underscores their continued use as a negotiating tool, prompting India to wait for greater clarity before resuming formal trade talks. Despite India opening several sectors to US imports, the country’s structural cost advantage in manufacturing should limit the impact to select pockets such as premium cars and high-end alcohol, rather than the broader industrial ecosystem. He also highlighted India’s free trade agreement with the European Union, noting that together the US and EU account for roughly half of global GDP, improving export access to both these major economic blocs.
Sorbh added that the common thread across recent developments, trade agreements, the Union Budget and RBI policy, is India positioning itself for a stronger domestic growth cycle, particularly in manufacturing and investment-led expansion.
From a policy perspective, the RBI’s stance has been supportive. After cumulative rate cuts of 125 basis points over the past year, the central bank kept rates steady while upgrading its growth and inflation expectations. “The RBI guided for a slightly firmer inflation trajectory, raising its FY26 estimate to 2.1% from 2%, alongside higher expectations for the first half of FY27 as well. This is consistent with an economy emerging from a very low-inflation phase and now experiencing a cyclical growth recovery,” said Chaudhary.
On the Union Budget, Chaudhary said markets had expected lower borrowing numbers and greater clarity on the fiscal consolidation path. While the consolidation trajectory remains intact, higher-than-expected borrowing led to some pressure on G-sec yields amid a demand–supply imbalance. “Longer tenor G-secs are looking quite attractive, with much of the uncertainty already priced in. However, the market is still staring at significant supply, and in the absence of a strong near-term catalyst, yields may remain range-bound in the short term,” he said.
What does this mean for the Indian markets here on? The Indian markets have underperformed its peers for some time. But now, with domestic growth gaining traction, policy changes providing the necessary support, and global exposure improving through trade agreements, the risk–reward balance appears meaningfully better.
