Indian Economy Weathers Global Geopolitical Storms With Robust Growth Outlook
The Indian economy continues to demonstrate remarkable resilience, storming ahead despite facing multiple geopolitical hurricanes across the global landscape. While these external tests have created turbulence in financial markets, they have encountered only limited impact on India's robust domestic demand, which maintains a healthy forecast of average real GDP growth at +7.0% for both FY26 and FY27.
Stock Market Volatility Amid Global Uncertainties
However, these geopolitical challenges are significantly affecting the Indian stock market, leading to increased volatility that is trapping investors' risk-taking appetite. This market turbulence stems from multiple factors including a rise in global bond yields, escalating geopolitical risk premiums, and sustained selling pressure from Foreign Institutional Investors (FIIs) who have adopted a sell-off strategy concerning Indian equities.
Oil Market Dynamics and Their Impact
India began the new year by touching fresh market highs, but these gains proved short-lived following geopolitical developments in Venezuela. This event triggered bouts of volatility in oil prices that continue to influence markets, albeit at a slower pace, amid ongoing uncertainty surrounding other major oil-producing nations including Iran.
Despite this double whammy of geopolitical tensions, the overall impact on the global oil market has remained relatively limited. This stability is supported by lower output from both affected countries, ample global supply availability, and a generally subdued demand outlook across international markets.
Geopolitical Developments and Market Responses
Thus far, domestic unrest in Venezuela and Iran appears to be under reasonable control, aided by international intervention and support mechanisms. If sustained, this containment could effectively restrict adverse spillovers into broader global markets.
This stability is further supported by maintained high production levels from OPEC nations and the United States, along with increasing probability regarding the reopening of the Venezuelan oil market. Such a scenario is expected to benefit key importers like India and China in the long-term perspective.
Trade Policies and Their Market Implications
Another significant source of volatility emerged when recent trade policies targeted nations importing oil from Russia. For India, Russian oil represented the largest source of input during 2025, and while this dependence has reduced recently, Russia continues to hold the third position among India's oil suppliers at a substantial rate.
This development has affected the performance of domestic stock markets, as both domestic and international investors have been eagerly awaiting progress on a comprehensive US-India trade deal. This agreement faces potential extension given the United States' heightened expectations regarding access to Russian oil markets, along with increased entry into India's Agriculture and Dairy sectors.
Escalating Global Tensions and Market Reactions
The global geopolitical risk environment further escalated recently with developments concerning international territorial interests. Strong opposition from the European Union led to retaliatory tariff announcements that initially rattled markets. Concerns eased only after more measured diplomatic addresses and subsequent withdrawal of these fresh tariff threats.
Despite this temporary dampening of immediate geopolitical risks, the fundamental texture of global cooperation has sustained damage. This has affected the overall strength and risk-taking appetite of global equity markets, coinciding with an uprise in bond yields across developed economies.
Market Indicators and Investment Sentiment
Precious metals continue to trade at elevated levels, though price movement volatility has increased due to persistent uncertainty surrounding international policies. Both the global volatility index and India's domestic VIX index have shown upward trends, reflecting heightened market anxiety.
This environment has amplified effects on Indian markets, which were already experiencing sell-off pressure, particularly from FIIs. This trend stems from concerns about relatively low earnings growth compared to elevated valuations, combined with uncertainties surrounding the US-India trade agreement. Consequently, profit booking is becoming increasingly prevalent at higher market levels as overall investor sentiment remains cautious.
Strategic Investment Recommendations
We advise investors to maintain a measured short-term outlook and avoid panic-driven selling during this volatile phase. Ongoing discussions between the United States and India continue with a constructive bias that could yield positive developments.
Additionally, progress on the EU–India Free Trade Agreement represents a forward-looking development that could significantly strengthen India's negotiating position with the United States and other trading partners. Following a set of weak Q3 results from IT and Banking sectors, there is an encouraging view that the next set of quarterly numbers will show improvement, primarily led by consumer-driven demand recovery.
Vinod Nair serves as the Head of Research at Geojit Investments Ltd.
Disclaimer: This analysis is presented for educational purposes only. The views and recommendations expressed above represent those of individual analysts or broking companies, not financial publications. We strongly advise investors to consult with certified financial experts before making any investment decisions.
