Market Outlook | Early February 2026

February has opened with Indian markets reacting to some major news. The big global change for India so far this year has been trade, and this time it is working in India’s favour. Two large doors have opened almost back-to-back. Europe first, and now the United States. 

Tariffs

From January 2026, the India–EU trade agreement kicks in with a meaningful tariff reset. The EU has committed to remove duties immediately on around 70 percent of tariff lines, covering close to 90 percent of India’s exports. Over the coming years, concessions extend to over 99 percent of export value. This matters because Europe moves from being a guarded market to a volume-friendly one for Indian manufacturers and exporters. It creates room to plan, not just to react. 

Then came the bigger surprise. On 2 February 2026, the US announced a fresh trade deal that sharply reduced one of the biggest external worries from last year. The country-specific tariff on Indian goods has been cut to about 18 percent. The earlier 25 percent punitive duty, which had pushed effective tariffs close to 50 percent, has been fully removed. For many exporters, this is a reduction of roughly 32 percentage points from the peak. 

This rollback improves pricing power in the world’s largest consumer market. It supports margins in sectors that were under pressure, including engineering goods, textiles, select chemicals and auto components. It also lowers the tail risk around external demand. With both the EU and US easing access, exporters can move from defending market share to planning growth capex, product upgrades and deeper supply-chain links. Execution will still matter, and so will rules of origin and sector details, but the direction of travel is clearly better. 

For equity investors, this improves earnings visibility in export-heavy sectors. It eases the medium-term risk premium on the rupee. And it lowers the probability of a trade-driven shock to India’s growth story, which was a real concern through much of 2025. Portfolios still need to stay alert to oil prices, shipping routes and technology controls, because headlines can shift global liquidity quickly. 

Economy and Union Budget 2026 

On the domestic side, the macro picture remains constructive. The Economic Survey and Budget signals point to India holding growth around or above 7 percent over the next few years. Public capex, manufacturing and services continue to do the heavy lifting. 

The government has stayed on a path of gradual fiscal repair while keeping investment spending high. This balance works well with the new export opportunities created by tariff relief. For FY26, capital expenditure stands at about ₹11.2 lakh crore. The Budget raises the next year’s capex target to roughly ₹12.2 lakh crore. That is an increase of about 10 to 11.5 percent over the current year’s revised estimate of around ₹10.96 lakh crore. 

To put this in perspective, central capex was just over ₹3 lakh crore in FY19. Public investment is now a core growth engine, not a side note. 

On the fiscal front, signals remain measured. Market expectations are for a deficit in the mid-4 percent range of GDP. There is a stated intent to bring overall government debt, currently around 85 percent of GDP, closer to 60 percent over time. This mix keeps bond markets calm and gives the RBI some flexibility to support growth if inflation behaves, especially now that external tariff pressure has eased. 

Markets after the Budget and the STT shock 

Budget 2026 also showed how quickly sentiment can turn. The sharp hike in taxes on futures and options raised trading costs overnight. Leveraged traders were forced to cut positions. Indices saw a sharp intraday fall before stabilising. 

Large caps held up reasonably well and frontline benchmarks remain close to their highs. Under the surface, the story is different. Several mid and small caps have slipped from their peaks as investors separate real earnings from pure hope trades. 

This reset can actually help long-term investors. Higher friction in speculative trading shifts attention back to business quality, cash flows and sensible position sizing. Combined with better external conditions from the US and EU trade deals, this internal clean-up can make the market healthier and more durable. 

Commodities and the rupee 

Gold has remained firm and is now consolidating. MCX futures are below the January peak. Budget-day volatility is giving way to a tighter range as markets digest fiscal signals, rate expectations and a global trade environment that looks slightly less hostile for emerging markets. 

Silver has been more volatile, reflecting its dual role as a precious metal and an industrial input. Prices fell sharply around the Budget but are stabilising near reset levels. The wider gap versus gold reflects its more cyclical behaviour. 

For the rupee, the trade deals matter. The US tariff cut from an effective level near 50 percent to about 18 percent removes a major overhang that weighed on the currency through 2025. The EU’s phased concessions broaden the base of export demand. Together, these support the medium-term outlook by improving exports, encouraging foreign flows and reducing the risk of sudden trade-driven pressure on the currency. 

Positioning of portfolios 

Portfolios are likely to do better by leaning on resilience rather than chasing every theme. High-quality businesses in financials, infrastructure enablers, manufacturing and consumption remain the core. A balanced mix of large caps and select midcaps allows participation in growth while managing risk. 

Within exports, the tariff reset justifies a fresh look at globally competitive companies in IT services, pharma, speciality chemicals, auto components and engineering. These businesses can benefit from margin relief and potential volume gains across the US and EU. Small-cap exposure is best kept modest, and leverage or short-term trading should not replace core equity allocation. 

Risk management needs to stay central. A measured allocation to gold can cushion portfolios during stress while equities compound. Currency exposure is better handled through diversified international funds aligned to global goals rather than trying to time rupee moves. Trade dynamics have turned favourable, but geopolitics and elections abroad can still surprise. 

To sum up, India’s backdrop remains encouraging, and tariff relief from the US and EU shifts the medium-term balance further in our favour. The real edge still comes from owning stronger businesses, respecting risk and giving time the space to work quietly in your wealth journey.