The Indian stock market benchmark indices, Sensex and Nifty 50 are expected to stage a rebound in the holiday-shortened week, supported by hopes of relief from US tariff measures and expectations around progress on the India–European Union (EU) trade agreement.
The Indian stock market is closed today, January 26, 2026, on account of Republic Day 2026, with trading on the BSE and NSE set to resume on Tuesday.
On Friday, both stock market indices witnessed a sharp sell-off, weighed down by persistent foreign institutional investor (FII) outflows, heightened geopolitical uncertainties, caution ahead of the Union Budget 2026, and mixed corporate earnings for the December quarter.
However, sentiment may improve following several key developments over the weekend.
Trump’s Tariff Relief Hopes
The Indian equity market could find support after US Treasury Secretary Scott Bessent signaled the possibility of rolling back the additional 25% tariffs on India. Bessent indicated that “there could be a path” to removing the levies, noting that India’s purchases of Russian oil have declined sharply following the tariff measures imposed by the Donald Trump administration.
India–EU Trade Deal Expectations
Separately, European leaders have arrived in India for the 16th India–EU Summit, where discussions will center on advancing a Free Trade Agreement (FTA) aimed at strengthening bilateral trade ties. Progress on the India–EU trade deal could provide a counter-cyclical buffer for the Indian economy by enhancing export participation in global value chains, expanding market access, and supporting supply-chain diversification.
As of FY25, the EU accounts for 17.3% of India’s total exports and 8.4% of imports, noted Madhavi Arora, Lead – Economist at Emkay Global Financial Services Ltd. She estimates that a possible bilateral alignment could lift India’s exports to the EU by $50 billion by 2031, led by medium-tech manufacturing.
“Improved import efficiency and higher FDIs would further support productivity gains and tech transfers, while greater regulatory certainty could aid IT services exports, where the EU already accounts for ~1/3rd of demand,” Arora said.
Arora sees India-US trade deal as a structural recalibration of exports rather than an ‘event’ to play any positive turnaround for equities. While the India-EU deal could be taken well by the markets, she believes a fruitful US-India deal, stability in the rupee, and reduced global noise remain crucial.
“Sector-wise, textiles, and select Pharma and Chemicals are the major beneficiaries,” Arora said.
According to Arora, key stocks that stand to benefit from the likely India-EU trade deal include Dr Reddy’s Laboratories, Lupine and Sun Pharmaceutical Industries in the Pharma sector; and SRF, Navin Fluorine, Gujarat Fluorochemicals and Aarti Industries in the Chemicals sector.
RBI Liquidity Boost
The Reserve Bank of India (RBI) on Friday said it will inject over ₹2 lakh crore of liquidity into the system through a slew of avenues. The measures include a 90-day Variable Rate Repo (VRR) operation for an amount of ₹25,000 crore to be conducted on January 30, 2026 and a USD/INR buy-sell swap auction of $10 billion or ₹₹91,000 crore for a tenor of 3 years to be held on February 4, 2026.
The central bank will also undertake government bond purchases under the open market operations (OMO) route of an aggregate amount of ₹1 lakh crore. This will include buying ₹50,000 crore each of bond buys on February 5 and February 12, it said.
Technical Outlook
Nifty 50 plunged 2.51% last week amid heavy selling pressure across all sectors, weakening the overall market structure. On the technical front, the benchmark index decisively slipped below its key 200-day EMA and closed below it, signaling a negative trend.
“Adding to the weakness, the 21-day EMA has crossed below the 55-day EMA, confirming bearish momentum. The weekly chart and candlestick pattern suggest further downside in the near term. Immediate support for Nifty 50 is placed near 24,850, and a break below this level could drag the index toward 24,600,” said Dr. Ravi Singh, Chief Research Officer from Master Capital Services Ltd.
On the upside, he sees resistance at 25,250, while sustained strength above this could lead to a recovery towards 25,500. “Until then, a sell-on-rise strategy remains preferable,” he said.
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