Stock markets don’t entertain uncertainties. Nothing highlights this truism more than the fact that from 2020 to 2024, the equity market rewarded almost any risk outlook. In that period, more than half of S&P500 companies delivered annualised returns above 15 per cent, and about 90 per cent had positive annualised returns. In other words, simply going with company results worked unusually well.

However, there was a distinct change in market sentiment thereafter. With 2025 winding down, around 40 per cent of the S&P500 headed for a negative year. That shift in the odds should prove a guide to how one should think about 2026. In the very first 10 days of 2026, the Indian stock market collapsed as US President Donald Trump proclaimed that if (Indian Prime Minister) Mr Modi has to please him (Mr Trump), India would have to stop crude imports from Russia.

As things stand, the US trade war with India, as with other countries, continues. Our goods exports to the US account for nearly 20 per cent of our total goods exports. According to S&P Global Ratings, US growth is expected to slow down to 1.7 per cent in 2025 from 2.8 per cent in 2024. Consequently, demand for Indian goods in the US will be adversely affected in 2026, even if the two sides reach a tariff entente.

The exact impact on India’s exports will become clear only after a few Indo-US trade agreements are completed, both in terms of the tariffs faced by India and the relative advantage or disadvantage this could give India vis-à-vis regional peers such as Vietnam, Thailand, South Korea and Japan – all of whom have already secured agreements with the US. However, as things stand, US tariffs will make Indian goods more expensive in the US market.

As far as the collateral impact (such as global slowdowns, cheap imports (dumping) and prolonged uncertainties) is concerned, although indirect transmission channels are outside India’s control, managing the impact on the Indian economy will require suitable interventions in the domestic policy landscape. The Eurozone, which accounts for 17.3 per cent of India’s exports, also faces growth challenges. While India’s direct goods export exposure to China is only 3.3 per cent, a wider global slowdown would likely weigh on India’s overall export performance.

The ongoing trade tensions between Washington and Beijing may exacerbate China’s concerns regarding overcapacity and deflation, leading Beijing to direct surplus supply to other markets such as India. Given that China accounts for 15 per cent of India’s goods imports, this shift would pose challenges for domestic manufacturers in India. Safeguard (anti-dumping) duties on specific imports suggest the risk is already materialising.

Incidentally, persistent and prolonged uncertainties are delaying private investment decisions and causing volatility in capital flows, financial markets and currency exchange rates. This trend is expected to continue as the tariff landscape evolves.

In the midst of these uncertainties, luck, domestic buffers and policy support will drive economic growth in India during 2026. No doubt, the monsoon season and lower crude oil prices have been highly favourable in 2025. The abundant rainfall is expected to improve agricultural output and help keep food inflation in check.

Thankfully, the situation has improved considerably on the inflation front. According to Crisil, crude oil prices are projected to average $ 65-70 per barrel in fiscal 2026, compared to $ 78-80 in fiscal 2025. Almost certainly, the inflation storm that dominated the last few years will not create any problem in 2026. However, while inflation seems to have ceased to be a problem, another speedbreaker has emerged in the form of labour. Unemployment is mounting, what with rapid technological growth and the advent of Artificial Intelligence. Payout announcements show that roughly 70 per cent of October 2025’s job cuts were framed as efficiency initiatives rather than as classic cyclical weakness.

Clearly, the situation is very complex and New Delhi will have to take imaginative and effective measures to keep the economy on the growth path.