Kotak Mahindra Bank Limited, AMFI Registered Mutual Fund Distributor , ARN 1390
February - 2026
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Market Summary |
Global equities have outperformed Indian equities for the month of January 2026. MSCI World and MSCI EM indices advanced 2.2% and 8.9% in USD terms respectively in January while MSCI India delivered -5.1%. Nifty delivered -3.1% (in INR terms). The long-awaited India-US trade deal along India-EU Free trade agreement deal marks a strong macro-positive development for India.
IMF has raised its 2026 global growth forecast to 3.3% from 3.2%, driven by resilient economic activity and strong AI led investment. While AI capex may provide productivity gains, it also risks higher inflation or a valuation reset if expectations fall short.
FPI flows into Indian equities were negative in January 2026 at
(-)USD 3.5 bn. DII inflows continue to offset the same, with USD 7.6 bn added in January 2026. Post the positive developments on the India-US trade deal FPIs have added 580 million $ into Indian Equity markets
As per Economic Survey, India remains the fastest growing major economy, with GDP growth projected at 7.4% for FY'26 & 6.8%-7.2% for FY'27. This high GDP growth comes on the back of low Consumer Price Inflation averaging at 1.7% for the period April 2025-December 2025.
As per Kotak Institutional Equities Research, Nifty earnings grew by 6.3% on a Y-o-Y basis in Q3 FY'26; The aggregate earnings are marginally ahead of expectations.
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Outlook & Strategy |
• RBI as expected maintained the rates at status quo and committed surplus banking system liquidity which was the need of the hour.
• Recent trade deal announcements will help improve FPI sentiment and flows in the interim; sustained market recovery will require meaningful earnings revival.
• Trade deals in addition to budget's impetus on infrastructure and manufacturing coupled with income tax cuts and GST rationalization announced earlier are expected to aid earnings growth going forward
• Our Investment Committee maintains constructive stance on Indian equities and advise clients to be 5% overweight on equities. We continue to maintain a 70:30 allocation between large caps and mid & small caps.
• The domestic-to-international equity mix remains unchanged at 80:20, but we recommend trimming exposure to the US.
• We retain our overweight stance on BFSI, and remain positive on consumption, supported by recovery in rural and urban demand. Within consumption, we prefer discretionary over staples.
• We remain positive on gold for its diversification benefits and recommend a 5% allocation.
• With yields likely peaking around current levels, we recommend holding positions for a better exit in the coming months.
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Fed holds Interest rate as economic view improves |
• Following three interest rate cuts earlier in 2025, the Federal Reserve kept the federal funds rate in the range of 3.5% - 3.75% unchanged in January 2026, marking the first pause since July 2025.
• The decision reflects the persistence of elevated inflation - which stood at 2.7% in December 2025, above the Fed's long-term target of 2% - as well as signs of stabilisation in the labor market.
• The unemployment rate declined to 4.4% in December, reversing the upward trend observed through much of 2025.
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India - US Trade Deal : Restoring a Level Playing Field |
• India and the United States have announced their long-pending trade deal with the US reducing reciprocal tariff on Indian exports from 25% to 18% and eliminated the 25% penalty on India's crude oil import from Russian oil.
• The reduction in reciprocal US tariffs on Indian exports comes less than a week after India and EU signed a landmark Free Trade Agreement (FTA), ending 20 years of negotiations.
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India Lags Emerging Market Peers Amid Weak FPI Participation |
• Over the past 18 months, emerging markets have shown a pronounced divergence.
• While major EM peers delivered strong gains, Indian equities underperformed and posted negative returns.
• Underperformance was driven by three key factors: (a) elevated valuations, (b) earnings downgrades, and (c) sustained FPI outflows.
• However, earnings upgrades and the recently concluded India-US trade deal may help reverse this underperformance going forward.
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RBI Set for an Extended Pause |
• RBI unanimously kept the repo rate unchanged at 5.25% while maintaining a "neutral" stance to balance stability with growth in its February monetary policy.
• The central bank revised both its inflation and growth forecast upwards for the near-term while awaiting the release of new series on both metrics to provide full-year estimates.
• We believe the RBI has reached the end of the rate cut cycle and we expect the RBI to remain on an extended pause through CY2026.
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Yields Near Peak Amid Supply Pressures |
• The announcement of higher‑than‑expected gross borrowing of ₹17.2 trillion for FY27 in the annual budget increased supply pressure and pushed the 10‑year G‑Sec yield upward before gaining slight relief from the announcement of India-US trade deal to rise again following the absence of liquidity measures in the February 2026 monetary policy.
• Yields appear to have peaked with 10 yr G-sec at ~6.75% and 30 yr G-sec at ~7.50%.
• With expectations of gradual liquidity easing and seasonally favourable last quarter, we suggest to hold on to our positions with better exit in the coming months.
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Trade Deal Optimism Shields Rupee from Dollar Strength |
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USD-INR remained under pressure in January as the Dollar Index stayed firm, reflecting broad‑based global dollar strength that weighed on emerging market currencies, including the rupee.
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Following the India-US trade deal announcement, the rupee strengthened sharply even as the Dollar Index softened.
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Base Metals Facing Uncertain Pivot |
• The base metal prices reversed their downtrend and surged since late 2025, with copper hitting record highs on supply tightness and strong demand.
• Aluminum and tin also jumped to multi-year highs before recent marginal corrections.
• The key drivers to the surge in commodities have been the supply squeeze, demand shifts and geopolitical factors.
• The outlook for base metals remains uncertain, with risks to the price outlook balanced on both sides.
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Investment Summary |
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Domestic market performance |
Data as on 31st January 2026, Source: Bloomberg, ICRA
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Global market performance |
Data as on 31st January 2026, Source: Bloomberg, ICRA
| ▮ | Disclaimer |
In the preparation of the material contained in this document, Kotak Mahindra Bank Ltd, has used information that is publicly available, including information developed in house. Some of the material used in the document may have been obtained from members/ persons other than the Kotak Mahindra Bank Ltd and / or its affiliates and which may have been made available to Kotak Mahindra Bank Ltd and / or its affiliates. Information gathered & material used in this document is believed to be from reliable sources. Kotak Mahindra Bank Ltd however does not warrant the accuracy, reasonableness and / or completeness of any information. For data reference to any third party in this material no such party will assume any liability for the same. Kotak Mahindra Bank Ltd and / or any affiliate of Kotak Mahindra Bank Ltd does not in any way through this material solicit any offer for purchase, sale or any financial transaction / commodities / products of any financial instrument dealt in this material. All recipients of this material should before dealing and or transacting in any of the products referred to in this material make their own investigation, seek appropriate professional advice.
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