The start of 2026 has been more volatile than expected. Domestic market was expected to drive some flavor in the month of January in expectation of better Q3 results compared to H1FY26. The Nifty 50 reached a new high of 26,340 on January 2nd, but unexpected geopolitical developments have unsettled sentiment. Concerns stem from the Venezuela–US crisis, instability in Iran, and recent statements by Trump regarding India’s Russian oil imports, raising uncertainty over whether the 25% penalty tariff on India will be reduced or remain in place.
Market concerns deepened after the approval of the Russian Act by Trump. Investors had anticipated that India would secure at least a preliminary trade agreement with the US in early 2026, potentially paving the way for the removal of the 25% penalty tariff, particularly in light of the recent decline in Russian oil imports. However, the US is now moving to impose tariffs of up to 500% on countries importing Russian oil. The specifics of implementation and the direct implications for India remain uncertain, the bill is pending approval in both houses. This prolonged ambiguity around tariff measures is exerting pressure on export-driven sectors, particularly those with significant exposure to US markets.
The crisis in Venezuela is unlikely to have a global or domestic impact due to its small economic leeway. Over the medium to long term, higher oil exports from Venezuela could help moderate crude prices, benefiting major importers such as India and China. In the near term, however, the transition in Venezuela and potential supply disruptions introduce some uncertainty, though the overall effect on global oil supply is expected to be limited due to the current oversupply situation.
A notable shift in US policy from sanctions to direct intervention is heightening geopolitical risks, with potential ramifications for regions such as Iran and Greenland. The 2025 bombing of Iranian nuclear facilities demonstrated that such events may have no impact on the global economy and financial markets. Meanwhile, the US has renewed its interest in acquiring Greenland for strategic and security purposes, with a meeting scheduled next week between US and Danish officials. This development is drawing close attention as European NATO members have strongly opposed the proposal, while Washington seeks to make its offer more appealing.
Overall, the geopolitical risks have entered 2026 on an elevated note. Safe-haven assets like precious metals are trending higher, while equities face persistent pressure. Global defense spending is rising, with the US proposing a $1.5 trillion defense budget and European nations increasing expenditures in response to the Ukraine conflict and shifting NATO commitments. Defense sector stocks are performing strongly and are expected to remain resilient. Conversely, the Indian market is likely to adopt a cautious stance until tariff-related uncertainties are resolved. With heightened geopolitical headwinds, the domestic market is likely to trade within a range with a mixed bias; the requirement is to attain a balance between the external risks and strong domestic fundamentals.
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