Market Outlook, Early Jan 2026

As the new year opens, the Indian market shows promise but there is apprehension too. Growth numbers look strong, policy is now gently supportive, yet valuations and global risks are forcing investors to be more selective and patient. We will examine this from the lens of global developments, economy, markets, commodities and currency. 

Global 

Geopolitics is adding a clear risk premium to assets, with the latest being the stand-off between US and Venezuela leading to energy and market worries. Tighter US scrutiny on Venezuelan oil, the risk of sanctions snap-back, and uncertainty around production and export volumes – these are all feeding into oil price volatility. This in turn affects inflation expectations, current account math and sentiment for import-dependent economies like India.  

Implication: For equity investors, this is a reminder that headline risk around commodities and geopolitics can dampen market sentiment, even when domestic growth and earnings remain on track 

Economy 

Industrial activity is flashing a caution sign even as the headline GDP number remains upbeat. India’s Index of Industrial Production grew 6.7% year-on-year in November 2025, the fastest pace in 25 months, driven by about 8% growth in manufacturing and a 5.4% rise in mining, even as electricity output remained slightly in contraction. At the same time, Q2 FY26 GDP has been running above 8%, so growth looks healthy on paper, but the underlying momentum is sensitive to global demand and policy shocks. 
 

Therefore, India’s economic policy has now shifted into gentle support mode. The Monetary Policy Committee cut the repo rate by 25 basis points in December 2025 to 5.25%, taking total easing in 2025 to 125 bps and keeping the stance broadly neutral and data dependent. Inflation remains unusually low, with CPI rising from a record trough of 0.25% in October to 0.71% in November, still well below the RBI’s 2–6% band, which gives room for calibrated, not aggressive, easing as 2026 progresses. 

Implication: For an investor, this combination usually means earnings growth can continue, cost of capital is drifting lower, but there is no policy-driven “sugar rush” to bail out weak businesses. 

Markets 

Headline indices are still reflecting optimism. Nifty has been hovering around the 26,000–26,300 zone through December, with technical opinions pointing to a broader bullish trend and potential for a move towards the 27,000 regions in the near term. Large private banks, select IT names, energy companies and metals have contributed a disproportionate share of index gains in 2025, helping Nifty stay close to record levels while domestic institutions absorb episodic FII selling through late December.  

Underneath, the average stock is facing more pressure than the index suggests, with Nifty 100 and Nifty 500 both roughly 2% below their recent highs and breadth data indicating that close to 40% of Nifty 500 stocks are more than 5% away from their all-time highs, pointing to selective buying rather than a broad-based advance.  

The reset in smaller names that started in late 2025 is still playing out. The Nifty Smallcap indices have been underperforming large caps, with November and early December showing declines in small caps even as Nifty remained broadly rangebound near all-time highs. This comes after a phase where small-cap valuations had stretched well beyond historical averages versus large caps, setting up the ground for mean reversion. 

Earnings and liquidity are now doing the heavy lifting in this rotation. Q2 FY26 trends show mid and large caps still delivering mid-single to high-single-digit profit growth, while small caps exhibit far patchier earnings and greater dispersion, which is typical after a long phase of outperformance and valuation expansion. 
 

Implication: In an environment where policy is supportive, but global risk appetite is fragile, flows are naturally gravitating towards liquid, steady compounders overcrowded “hope stories” in illiquid small caps. 

Gold & Commodities 

Gold has turned into a very visible shock absorber in portfolios. MCX gold futures in India traded around ₹1,30,300–1,30,500 per 10 grams in December, with spot 24k prices near ₹1,35,000–1,35,500 per 10 grams, supported by COMEX prices above 4,200 dollars an ounce and strong central bank buying against a backdrop of geopolitical tension. 

Silver has also rallied sharply, with MCX silver futures hitting new lifetime highs in December, around ₹1.90–1.94 lakh per kilo and approaching ₹1.93 lakh per kilo on some contracts, driven by safe-haven flows and its use in solar and other green technologies. Volatility has picked up further after CME raised margin requirements on silver futures, which has amplified intraday swings and forced more aggressive risk management even as the broader trend remains constructive. 
 

Looking into January, gold is likely to stay in a firm-to-positive range as long as real global yields remain subdued, central banks keep accumulating reserves, and geopolitical tensions linger, even if short-term volatility emerges around US data releases and policy commentary. Silver could see even sharper swings but retains an upward bias, because any risk-on phase that powers industrial metals, combined with ongoing solar and EV-related demand, can add a growth kicker on top of its monetary safe-haven role, making staggered accumulation more sensible than trying to time every dip. 

Currency 

Forecasts for 2026 now broadly see USD/INR trading in a band of roughly 87.0 to 95.9, with a gradual bias towards rupee strengthening over the medium term as global conditions normalise, even though near-term risks from tariffs and a firm dollar keep the upside tested. Bank of America and ING both see room for the rupee to appreciate towards about 86–87 per dollar by the end of 2026, arguing that recent weakness has been driven more by global factors than by domestic fundamentals. 
 

View on 2026 

January 2026 opens with a market that is still enjoying a “Goldilocks” mix of low inflation and healthy growth yet must constantly justify elevated valuations in the face of global policy and geopolitical noise. Large caps and higher-quality midcaps continue to anchor this resilience, while parts of the broader market, especially smaller and more speculative names, are still working through an earnings and valuation reset.  

This is a year to emphasise depth over breadth: fewer, stronger ideas, backed by robust balance sheets, consistent cash flows and disciplined capital allocation, rather than a long tail of “stories” driven by momentum. Portfolios need to be positioned so that core equity holdings can compound through varying policy cycles, with measured use of gold as a risk hedge and a clear framework for managing currency exposure linked to global goals.