January, 2026

New year, new markets?

Mohit Dugar, CFA

First of all, happy new year to you from all of us here at Pinnacle Finvest. May this new year be filled with happiness, new market highs and even higher portfolio valuations.

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Last month of the last year was full of events that can shape the market trends and returns. NIFTY and Sensex both ended the last trading day of 2025 in the green, with NIFTY up 0.6% and Sensex up 0.5% and cumulatively up 10.78% and 9.2% respectively for the year ending 2025.

December began with the most important RBI MPC decision of cutting the Repo rate by 25 bps owing to still low inflation numbers giving RBI more headroom to support growth. The commentary was fairly dovish noting the undershoot on inflation and observing that both headline and core inflation are expected to be around the 4% target during the first half of 2026-27. The RBI announced liquidity measures as well including ₹1 lakh crores of OMO purchase (in two tranches of ₹50,000 crores each on 11th and 18th December) as well as a USD/INR buy/sell swap of USD 5 billion for a tenor of 3 years to be conducted on 16th December. This move is expected to further enhance liquidity in the system.

This was followed by the US FED cutting rate by 25 bps in FOMC and signalling a dovish stance. US CPI also cooled down to 2.61% and surprisingly the US economy grew at a healthy 4.3% in the September quarter, fastest pace in two years, putting to rest the speculations regarding the US entering a recession. Despite the cut, the FED maintained its outlook for only one rate cut in 2026.

Private CapEx has been another talking point – it is viewed as a crucial metric that can contribute significantly to the economic growth. It has been a laggard of late, but green shoots are starting to emerge which can be a good sign. Capex expansion is becoming broad-based, with the count of companies with >US$100 million annual CapEx and the cumulative CapEx rising to 169 and US$131 billion by end of Sep’25 respectively, which is close to the levels last witnessed in 2011-12. During this time, the corporate CapEx expansion has predominately been in sectors like industrials, autos, metals and consumption, energy, utilities and healthcare. IIP growth was also at 6.7%.

The USD/INR also recorded its lowest level in December of ₹91.14 per $. This depreciation was driven by several factors:

· Sustained foreign institutional investor (FII) outflows from the Indian equity market.

· Strong demand for the dollar from importers.

· Global economic pressures and uncertainty, including high U.S. tariffs on Indian goods and a strong dollar.

· A big trade deficit.

However, RBI intervened to stabilise the exchange rates a bit. Also, the trade deficit has narrowed and is at a five-month low. India’s external metrics improved meaningfully in November 2025 as Merchandise exports increased 19.4% year-on year to $38.1bn, while imports contracted 1.9% to $62.7bn, compressing the goods trade deficit to $24.5bn, the lowest since Jun-25 and far below record $41.7bn gap of Oct-25. The correction was driven by normalisation in gold and silver imports following festive-season front‑loading, alongside stable oil imports.

This month also saw a meltdown. IndiGo crisis was one of the most disruptive events that the Indian skies witnessed of late. IndiGo was unable to adhere to the new FDTL norms laid down by the DGCA which led to mass cancellation of flights and interrupting the schedules of millions of flyers during one of the busiest traveling seasons. This mass exodus wiped out almost $4 billion in market cap. The DGCA reduced the slots allotted to IndiGo further adding to the pain.

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Gold and Silver continued their dream run and shattered all the records. This was the best year on record for these metals since 1970. An almost one-sided rally giving around 65% and 142% returns respectively for the year ending 2025.

In other news, Bank of Japan hiked their policy rates by 25 bps – highest since 1995 leading to fear of the Yen carry trade unwinding even further. This could put a lot of pressure on US Treasury Securities. India and New Zealand also signed the much-awaited FTA, granting Indian exporters access to a new market.

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2025 was the year of consolidation for Indian equities. Valuations have moderated across market cap segments, providing reasonable entry point for investors with a medium to long term view. DIIs continued to be net buyers for the fifth consecutive year in Indian equities, providing cushion against FII outflows and reinforcing the structural support for Indian equity markets. Fixed income saw steepening of the yield curve with extreme longer end of the curve edging higher. Precious metals continued their strong run in 2025. Brent crude was down for the third year in a row, which is positive for oil importing countries like India.

The past year reiterated the importance of asset allocation. How important it is to follow a balanced approach and not go overboard and any particular asset class. Looking ahead to 2026, India’s economic growth is expected to be strong, however uncertainties will persist, hence, investors should focus on balanced portfolios via asset allocation.

www.pinnaclefinvest.com

mohit@pinnaclefinvest.com

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