Market signals: Global factors will continue to drive stock markets

January this year saw a ratcheting up of geopolitical tensions by United States President Donald Trump with demands on Greenland. The uncertainty on global trade also increased as a result. The threats and the uncertainty have had a textbook impact on global assets. Gold and silver have seen big rallies. The yellow metal is up 20 per cent and silver an incredible 59 per cent in the first four weeks of 2026. Meanwhile, bond markets in Japan and the US have experienced sharply bearish moves and stock markets have range-traded, while investors crossed their fingers and hoped for an easing of tensions. 

Wall Street is bracing itself for the possibility that investors in Europe and Japan will start selling a chunk of the US government debt they hold. If investors do decide to divest US treasuries, this would further push up US bond yields and make it more expensive for America to service its enormous debt of over $30 trillion. It would also make it more expensive for corporations to raise dollar-denominated debt, or for individuals to service American mortgages.  Traditionally, gold and other precious metals are seen as havens for capital in uncertain times, and the last year or so certainly fits that description. Bullion has been in a dizzying bull run after the Trump administration took charge in January last year. Since then, gold is up 65 per cent and silver a whopping 150 per cent (silver is an essential commodity for the electronics industry). 

Indian investors are in a difficult spot, given the uncertainty. In January to date, the benchmark Nifty saw a small correction of around 3.3 per cent after gaining 9.8 per cent in 2025. The rupee has also been under continuous pressure and foreign portfolio investors (FPIs) have steadily reduced exposure to Indian equity. Since January 2025, FPIs sold equity assets of over ₹2 trillion. Dalal Street has remained afloat only due to net inflows of over ₹3.5 trillion into domestic-equity mutual funds. Most of that money has come from retail investors. The inconsistent and unreasonable policies of the Trump administration have also led to a decline in the dollar, which is down by 13.7 per cent against the euro since January 2025. Combined with the rising yields on US debt, this puts more pressure on the US, a net importer.  The rupee has also lost significant ground since January last year and is down 8.5 per cent against the dollar and about 20 per cent versus the euro. In the given global economic environment, and particularly the trade position with the US, the Reserve Bank of India has done well to let the rupee depreciate. It will not compensate for the tariff disadvantage but will give the best possible chance to Indian exporters to compete. 

In terms of stock markets, the data indicates India’s equity bourses have been buoyed up purely by domestic funding, mainly by household savings. However, their investment tends to dry up and reverse if there is a sustained period of equity underperformance, or a sharp decline in stock-market values. A bear market could well be on the cards, given the tense geopolitical situation and investors should be prepared to deal with that contingency. Thus, what happens in the Indian stock markets in the coming weeks will largely depend on global factors. It would also be interesting to see if the upcoming Union Budget can lift the mood in the stock markets.