The Indian stock market is currently navigating a complex landscape of global trade dynamics, domestic economic policies, and liquidity conditions. Several factors are converging to influence the trajectory of the Sensex and Nifty, including hopes for tariff relief from the Trump administration, optimism surrounding a potential India-EU trade deal, and the Reserve Bank of India's (RBI) liquidity management measures.
Trump's Tariff Relief Hopes
The prospect of eased trade tensions stemming from potential tariff relief measures by the United States is providing some optimism. Recently, President Trump has shown a tendency to back away from aggressive trade stances, which has been met with relief in financial markets. For instance, the decision to suspend tariffs on goods from Canada and Mexico has been viewed positively, contributing to improved investor sentiment. However, the situation remains fluid, and uncertainty surrounding trade policies continues to be a source of volatility. Any definitive steps towards a more stable trade relationship between the U.S. and India could act as a significant catalyst for the Indian stock market.
India-EU Trade Deal Optimism
Negotiations between India and the European Union (EU) are progressing toward a comprehensive Free Trade Agreement (FTA), potentially to be announced soon. The proposed FTA, dubbed the "mother of all deals", is expected to significantly expand bilateral trade and boost Indian exports in sectors such as textiles and jewelry, which have been affected by existing tariffs. A key aspect of the deal involves India potentially reducing import tariffs on cars from the EU from as high as 110% to 40%. This move is anticipated to reshape the competitive dynamics in the premium car segment and benefit European automakers. Moreover, the FTA is viewed as a strategic step to diversify supply chains and reduce dependence on China.
RBI Liquidity Cheer
The Reserve Bank of India (RBI) is actively managing liquidity in the banking system through various measures. The central bank recently announced a series of steps to inject liquidity, including open market bond purchases, foreign exchange swaps, and variable rate repo operations. These measures are aimed at easing liquidity conditions and supporting financial system stability. By injecting over $23 billion (approximately Rs 2 lakh crore) into the banking system, the RBI seeks to ensure adequate funds for lending and investment, which can boost economic activity and market sentiment.
Sensex and Nifty Technical Outlook
Recent market activity has seen the Sensex and Nifty facing downward pressure, with both indices declining. On January 23, 2026, the BSE Sensex closed lower by 769.67 points (-0.94%) at 81,537.70. From January 19th to January 23rd, the Sensex declined by 1.83%, and the Nifty 50 dropped by 1.98%. Technical analysis suggests that the Nifty has managed to defend its 200-day moving average near the 25100 mark, a level crucial for maintaining its medium-term structure. Experts anticipate Nifty to reach between 28,500 to 29,800 and Sensex to reach 98,000 levels in a bull case scenario.
Overall, the Indian stock market's outlook is cautiously optimistic, contingent on positive developments in trade relations, the India-EU FTA, and the effectiveness of RBI's liquidity management.
