Indian Markets 2026: Navigating ₹2 Lakh Crore RBI Liquidity, Landmark EU Trade Deals, and the Path to Budget Sunday
As of Sunday, January 25, 2026, the Indian financial ecosystem stands at one of its most critical crossroads in recent history. The month of January has been a period of intense volatility, with the Nifty 50 settling at 25,048 and the Sensex at 81,537, representing a year-to-date decline of over 4.00%. While domestic markets have been bruised by persistent Foreign Institutional Investor (FII) outflows exceeding ₹36,500 crore, a series of massive policy shifts and global trade realignments are beginning to offer a potential floor for the current correction.
Retail investors are currently processing a barrage of data points, from the Indian Rupee breaching the historic 92 mark against the dollar to the Reserve Bank of India (RBI) launching a massive ₹2 lakh crore liquidity lifeline. Furthermore, the upcoming announcement of the India-EU Free Trade Agreement and an unprecedented Sunday Union Budget presentation on February 1 are set to define the market's trajectory for the remainder of the year.
1. The India-EU Free Trade Agreement: A Strategic "Watershed Moment"
After 18 years of complex negotiations that began in 2007, India and the European Union are poised to conclude their landmark Free Trade Agreement (FTA) on January 27, 2026. This deal, frequently referred to by policymakers as the "Mother of All Deals," will integrate two massive economies to create a unified market of 2 billion people, accounting for a staggering 25% of global GDP.
Strategic Diversification Amid U.S. Tariffs
The timing is crucial. As the Trump administration maintains a 50% tariff regime on various Indian goods, the EU FTA provides a necessary hedge. Currently, the EU market accounts for 17% of India's total exports. In FY 2024-25, bilateral goods trade reached USD 136.53 billion, while services trade contributed an additional USD 83.10 billion in 2024.
Complementarity in the Value Chain
Unlike trade deals that pit domestic industries against each other, the Global Trade Research Initiative (GTRI) suggests this agreement expands trade due to structural differences in what each region produces.
Table 1: India-EU Trade Complementarity (Major Categories)
| Indian Exports (Labor-Intensive) | Value (USD) | EU Exports (Capital/Tech) | Value (USD) |
|---|---|---|---|
| Petroleum Products | $15.0 Billion | Industrial Machinery | $13.0 Billion |
| Electronics | $11.3 Billion | Aircraft & Parts | $6.3 Billion |
| Garments & Textiles | $4.5 Billion | Medical Devices | $3.8 Billion |
| Smartphones | $4.3 Billion | Aluminium & Brass Scrap | $1.1 Billion |
| Pharmaceuticals | $3.0 Billion | Advanced Chemicals | Varies |
Market Impact: Key beneficiaries include export-heavyweights like TCS, INFY, WIPRO, SUNPHARMA, DRREDDY, and MARUTI. The deal will eliminate or reduce tariffs on over 90% of traded goods, providing immediate relief to textiles and footwear sectors.
2. RBI's ₹2 Lakh Crore Liquidity Intervention
To combat a liquidity deficit exacerbated by foreign exchange interventions, the RBI announced a comprehensive $23 billion (approx. ₹2 lakh crore) package on January 23, 2026. This move aims to stabilize the banking system and ensure credit transmission remains fluid.
The Three-Pronged Liquidity Strategy
- Variable Rate Repo (VRR): A ₹25,000 crore 90-day operation on January 30, 2026, to manage transient overnight rates.
- Foreign Exchange Swap: A $10 billion three-year USD/INR buy/sell swap auction on February 4, 2026, designed to inject rupee liquidity while curbing currency volatility.
- Open Market Operations (OMO): Government bond purchases totaling ₹1,00,000 crore across two tranches (₹50,000 crore each) on February 5 and February 12.
Table 2: Current Monetary Stance Summary
| Metric | Value / Target |
|---|---|
| Benchmark Repo Rate | 5.25% |
| Total Rate Cuts (Since Feb 2025) | 125 bps |
| Target Liquidity Level | 0.6% to 1.0% of NDTL |
| YTD Bond Purchases (OMO) | ₹5.20 Lakh Crore |
Banking giants like SBIN, HDFCBANK, ICICIBANK, and AXISBANK are expected to see improved funding costs and stabilized margins as banking system liquidity reaches roughly 0.9% of net deposits.
3. The Rupee Crisis: Historic Breach of the 92 Mark
The Indian Rupee (INR) hit an all-time intraday low of 92.00 against the US Dollar on January 23, 2026, before settling provisionally at 91.88. The currency has depreciated over 2.00% in January alone, following a 5.00% slide throughout 2025.
Key Pressure Points for the Rupee
- FII Selling: Foreign investors offloaded ₹2,549.80 crore on January 23 alone, bringing the monthly total to ₹36,500 crore.
- Crude Oil: Brent crude rose 1.03% to USD 64.72 per barrel, increasing the import bill.
- Dollar Strength: The Dollar Index remains elevated at 98.36.
While this hurts importers and contributes to imported inflation, it provides a tailwind for the price competitiveness of IT services and Pharmaceutical exporters. Analysts at Mirae Asset Sharekhan expect the rupee to trade in a range of 91.60 to 92.30 in the near term.
4. Geopolitical Dividends: U.S. Tariff Relief Prospects
In a surprising development, U.S. Treasury Secretary Scott Bessent hinted on January 23 at the potential removal of the additional 25% tariffs imposed on Indian goods. The justification? India's successful pivot away from Russian energy.
The "Russian Oil" Success
India's imports of Russian crude in December hit a two-year low, with OPEC's share rising to an 11-month high. India currently faces a total of 50% U.S. tariffs (including a 25% levy specifically tied to Russian oil purchases). A removal of this specific portion would drastically improve margins for companies with heavy U.S. exposure, such as RELIANCE, TATASTEEL, and JSWSTEEL.
5. Safe Haven Surge: Gold at ₹1.60 Lakh, Silver Tops $100
Precious metals have witnessed an 11.00% rally over just 10 days. On January 25, 2026, 24-karat gold stabilized at ₹1,60,260 per 10 grams, while 22-karat gold stood at ₹1,46,900.
Table 3: Precious Metal Price Snapshot
| Metal | Current Price (Domestic) | International Spot Price |
|---|---|---|
| 24K Gold | ₹1,60,260 / 10g | $4,917.65 / oz |
| 22K Gold | ₹1,46,900 / 10g | N/A |
| Silver | Varies | $100.00 / oz |
Drivers include softening U.S. Treasury yields, fiscal concerns regarding the U.S. deficit, and central bank buying. Goldman Sachs has recently raised its 2026 target for gold to ₹1.75 lakh per 10 grams.
6. The IPO Wave: 13 Companies Receive SEBI Clearance
Despite the broader market malaise, capital formation remains robust. SEBI cleared 13 IPO filings between January 19-23, 2026, representing a diverse array of sectors.
Table 4: Significant Upcoming IPOs
| Company | Est. Size (₹ Crore) | Sector / Significance |
|---|---|---|
| Hella Infra Market | ₹4,500 - 5,500 | Construction-tech platform |
| Sify Infinit Spaces | ₹3,700 | India's first Data Centre listing |
| UKB Electronics | ₹800 | Consumer Electronics |
| Purple Style Labs | ₹660 | Luxury Fashion (Pernia's Pop-Up Shop) |
| Oswal Cables | ₹500 | Industrial Infrastructure |
7. Union Budget 2026: The Sunday Inflection Point
Finance Minister Nirmala Sitharaman will present the Union Budget 2026-27 on Sunday, February 1, with stock markets remaining open for live trading. Markets are closely watching the fiscal deficit target, which consensus estimates place at 4.2% - 4.3% of GDP.
Key Investor Expectations:
- Taxation: Proposed 20% tax rate for households with cumulative income of ₹30 lakh.
- MSME Support: Potential customs duty rationalization to counter global trade pressures.
- Startup Ecosystem: Rationalizing accreditation thresholds for Angel Investors (currently ₹7.5 crore net worth).
- Infrastructure: Sustained focus on L&T, IRFC, BEL, and HAL.
8. Sector Spotlight: Real Estate Crisis & Banking Miss
While some sectors show hope, the Nifty Realty index has crashed 8.20% in January, marking the 10th consecutive session of losses. The sector is now 23.00% below its 52-week highs.
Table 5: Sectoral Performance & Corporate Earnings (Q3)
| Stock/Index | Performance Metric | Value / Change |
|---|---|---|
| Nifty Realty | January 2026 Return | -8.20% |
| Signatureglobal | YTD Decline | -21.00% |
| ICICI Bank | Q3 Profit After Tax (PAT) | ₹11,318 Cr (Miss) |
| ICICI Bank | Net Interest Margin (NIM) | 4.30% (Stable) |
| Nifty Midcap100 | Weekly Performance | -4.58% |
| Nifty Smallcap100 | Weekly Performance | -5.81% |
ICICI Bank's PAT decline of 4.00% YoY (below the estimated ₹12,346 crore) has intensified the "bearish technical tone" for the Bank Nifty, which broke below the crucial 58,800 support level.
Key Takeaways for Investors
- Trade Catalysts: The India-EU FTA (Jan 27) and potential U.S. Tariff Relief are massive structural positives for export-oriented sectors.
- Liquidity Support: The ₹2 lakh crore RBI injection is intended to prevent a credit crunch and support the banking sector's margins.
- Sectoral Warning: Real Estate and Small-cap stocks are in a deep correction; high-quality Large-caps and Defensives (IT/Pharma) remain the preferred shelter.
- Budget Readiness: Markets will be open on Sunday, Feb 1. Watch for the 4.2% fiscal deficit target and MSME incentives.
- Technical Levels: Nifty has support at 24,880 and 24,587. Resistance is pegged at 25,300 and 25,400.
What This Means for Investors
Data suggests that while the current "risk-off" sentiment is being driven by FII selling and Rupee weakness, the underlying structural drivers—demographics, infrastructure capex, and new trade corridors—remain intact. Historical trends indicate that massive liquidity injections like the one planned for early February often precede market stabilization. Investors may consider monitoring export-oriented firms (IT and Pharma) that benefit from the weak Rupee and potential trade agreements, while remaining cautious on high-valuation cyclical sectors like real estate until Q3 earnings visibility improves.