Here are 7 threats that can spoil Nifty Bulls’ New Year plans:
1) Postponement of the US-India trade deal: the ticking time bomb
Bank of America Securities called this the most immediate threat: “We believe markets are already pricing in a US-India trade deal. While we believe the trade deal announcement could happen soon, any delay in the announcement after Jan 26 could disappoint markets and pose a risk.”
The stakes are high. Under BofA’s base case, India is expected to eventually attract 15% tariffs from the US, in line with current market reactions. But the nightmare scenario, sustained rates of 25 to 50%, would lead to severe volatility.
“Any prolonged delay in the India-US trade deal would be negative and could hamper overall market sentiment and export momentum,” Gupta added.
Also read | Nifty seals rare 10-year winning streak by ending 2025 with 10% gain. What does it mean for 2026?
2) Geopolitical chaos: the unpredictable wildcard
Abhishek Jain, head of research at Arihant Capital Markets, identified political uncertainty as the elephant in the room: “The biggest risk for equity markets in 2026 is political uncertainty. Markets are looking to the future, but they are still not fully factoring in the coming global electoral volatility. Only the US will face a crucial election that could change budget priorities, regulatory prospects and foreign policy – especially in areas such as trade and technology.”
3) Implosion of the AI bubble: the risk of contagion
The concentration in overheated, AI-powered US tech stocks poses a systemic threat to global markets, including India.“A significant correction in overheated AI stocks could spill over globally, triggering a broader market correction, including in India,” Gupta warned.
Elaborating on the spillover mechanisms, BofA said: “A sharp correction in US equity markets, especially due to the bursting of the AI-led valuation bubble, poses significant risk to Indian equities as Indian markets are highly correlated with US equity markets. Furthermore, increased positioning in AI names and expanded multiples imply that risks could spill over into global assets, leading to capital flight to safety and foreign outflows for emerging market countries.”
For India, this translates into continued FII outflows and increased volatility.
4) Mismatch between profit and valuation: the reckoning awaits
Until mid-2024, when the market rebounded non-stop, valuations and earnings growth were the two biggest risk factors for the market. While valuations have undergone a time correction as Nifty is still below its 2024 peak, earnings growth is yet to pick up strong enough to justify double-digit gains.
“India needs to grow faster than the region to justify the valuations it trades at. In the absence of the expected cyclical recovery in growth, valuations are likely to remain a concern,” HSBC said.
Pointing out the precarious balance, Gupta said: “Early signs are visible around the earnings rebound. While much of the valuation froth is behind us, any disappointment on the overall earnings trajectory will be a major negative. This reinforces the need for consistency. Higher valuations for the broader market are another area. With an uneven earnings profile, any slight miss could lead to significant derating.”
Index-level EPS growth for FY27 and FY28 is expected to be in the double digits, so any meaningful reduction in these expectations could drag returns down. “Even though the broad market has corrected over the course of 2025, in my view investors should still be aware of valuation risks in sectors such as auto and defense stocks, where share prices may already have risen in anticipation of future earnings growth,” said Krishnan VR, head of the Quantitative Research team at Marcellus.
5) Crude Oil Peak: The Silent Killer
BofA global commodity analysts expect Brent crude to average $60 per barrel in CY26, up from $69 per barrel in CY25, but highlighted three upside risks: further geopolitical flare-ups, stronger-than-expected global economic growth and strong demand from China building strategic oil reserves.
“We believe a spike in crude oil prices could be a significant risk for India,” BofA warned. “For example, if crude oil rises by $5 per barrel on an annual basis, it could add $6 billion (14 basis points) to India’s current account deficit.”
6) Depreciation of the Rupee: The Vicious Circle
While BofA and consensus expect the rupee to appreciate 3-6% in CY26, several factors could lead to the opposite outcome: widening current account deficit due to crude oil spike, lower exports due to trade deal delays, continued FII outflows, fiscal slippage due to lower tax collections and higher subsidies.
“Over the past 15 years, INR depreciation has reduced annualized returns for foreign investors by 5 percentage points, one of the most significant declines in Asia,” HSBC said, adding that a 1% depreciation in the INR could result in a 1.2% decline in Indian equities.
The BofA warned of a dangerous feedback loop: “Continued foreign outflows due to further depreciation of the rupee could tighten domestic liquidity conditions from here on out and dampen the pace of economic recovery.”
7) Stock Supply Excess: Death by a Thousand IPOs
While a section of the street celebrates the resilience of domestic investors, the reality is that demand is being met by supply coming in through sales by promoters, PE/VC investors, IPOs and FPOs.
“Share supply remains at a record high. The supply of new shares through primary or follow-on offerings (including insider sales) has exceeded the $5 billion to $6 billion mark in recent months. This poses a risk to market performance unless foreign investors return en masse,” HSBC warned. It estimates that about 65% of the new money raised this year went to existing shareholders through a sale offer, rather than to the companies themselves.
As Nifty Bulls chart their 2026 journey with ambitious targets of 29,000, these seven risks serve as sobering reminders that the road ahead is full of pitfalls. In a market that has defied gravity for a decade, the law of averages may finally be catching up unless Indian stocks can navigate this obstacle course with the same agility that has characterized the past decade.
(Disclaimer: Recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of The Economic Times)
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