If 2025 taught us anything, it’s this: markets don’t need a crisis to stay volatile. They only need enough uncertainty, arriving from different directions, at different times.
The good news is growth hasn't collapsed, inflation is behaving (mostly), and rate cuts are in motion. India enters the year with decent buffers – low inflation, solid reserves, and domestic flows holding up. But those risks don't vanish. They transmit through currency, confidence, and capital flows.
This edition of our Risk Radar 2026 cuts through the noise. We rank what actually matters for 2026, map how it hits assets (▲up, ▼down), then translate it into clear portfolio moves. No crystal ball. Just practical steps for the year ahead.
The 2026 Risk Map
Let’s start with a simple question: What are we worried about, and how likely is it?
| Risk Event | Description & Our 2026 View | Probability in 2026 |
|---|---|---|
| Global Trade Protectionism | We see a persistent drift toward “slow-balisation” rather than a return to the old, frictionless trade regime. Existing tariffs are unlikely to be rolled back meaningfully, and fresh measures on strategic goods, green subsidies and local-content rules are quite possible. For India, this is a double-edged sword: near-term volatility for exporters, but a structural opportunity to capture supply-chain diversification if policy remains predictable and competitive. | 🔴 High |
| Middle-East Conflicts | The risk here is not just episodic flare-ups but a more prolonged phase of tension that keeps oil prices and shipping costs elevated. A full-scale regional war is not our base case, but repeated spikes in anxiety could still push crude higher and tighten global financial conditions. For India, given its dependence on oil imports, this is one of the most important external risks. | 🔴 High |
| US–China Tech & Trade Relations | We expect strategic competition between the US and China to stay elevated, especially in high-tech sectors, data, and critical supply chains. Instead of one disruptive event, we expect a steady stream of restrictions and relocation of production. This creates regional winners and losers: some Asian economies may benefit from supply-chain relocation, while China-centric ecosystems face ongoing pressure. India stands to gain selectively if it can continue improving the ease of doing business and execution of manufacturing incentives. | 🟠 Medium |
| Divergent Global Rate Cut Cycle | After a highly synchronised hiking cycle, central banks are now likely to be more out of sync. We expect some developed markets to cut faster as growth slows, while others stay cautious if inflation proves sticky. India’s rate path may also diverge from the Fed’s at times, driven more by domestic growth-inflation dynamics. This divergence can fuel cross-border capital flows, FX volatility, and periodic repricing in global and Indian bond markets. | 🟠 Medium |
| Technological Disruption | AI, automation and digital platforms are no longer a distant theme; they are starting to reshape earnings, employment and competitive advantages. Our view is that disruption risk is highest for legacy business models with weak digital adoption and the largest opportunity for scalable, asset-light platforms and productivity enablers. In India, this split is visible in IT services, financial services, media, and even certain parts of the manufacturing sector. | 🟠 Medium |
| U.S. Debt Sustainability Concerns | Years of large fiscal deficits and higher interest rates have pushed U.S. government debt to elevated levels. We do not expect a debt crisis in 2026, but rising borrowing needs and refinancing costs are likely to keep U.S. fiscal sustainability under scrutiny, with spillover effects for global bond markets and capital flows. For India, the risk is indirect through global rates and currency volatility, rather than domestic debt stress. | 🟠 Medium |
How These Risks Hit Markets
To make this practical, let’s connect each risk to asset classes- India vs the World. We keep it simple: a few representative global assets, and the Indian segments most exposed.
| Risk | Impact on Global Asset Classes | Impact on Indian Asset Classes |
| Global Trade Protectionism | U.S. Consumer Durables ▼ U.S. Retail ▼ Chinese Export Equities ▼ US Government Bonds ▲ | Indian IT Sector ▼ INR/USD ▼ Gold (INR) ▲ Indian Pharma Sector (export-oriented) ▼ |
| Middle-East Conflicts | Global Inflation Expectations ▲ Brent Crude (USD) ▲ Global High-Yield Bonds ▼ Global Energy Equities ▲ | INR/USD ▼ Gold (INR) ▲ Indian Corporate Bonds ▼ Indian Oil Manufacturing Companies (OMCs) ▼ |
| US–China Tech & Trade Relations | CNY/USD ▼ Chinese Tech Equities ▼ U.S. Semiconductor Equities ▲ | Domestic Electronics Manufacturing ▲ FPI Inflows in Manufacturing ▲ Indian Government Bonds ▲ |
| Divergent Global Rate Cut Cycle | U.S. Government Bonds ▼ Euro Area Bank Equities ▼ JPY/USD ▼ EM Sovereign Bonds ▼ | Indian Bank Equities ▼ Indian Real Estate ▲ Indian Short-Duration Bonds ▲ FPI Debt Flows ▼ |
| Technological Disruption | U.S. IT Services ▼ U.S. AI Equities ▲ Chinese Hardware Firms ▼ | Indian IT Sector ▼ Indian Fintech Platforms ▲ Indian PSU Banks ▼ |
| U.S. Debt Sustainability Concerns | U.S. Government Bonds ▲ USD ▲ Global Banks ▼ | Indian Government Bonds ▼ Gold (INR) ▲ INR/USD ▼ |
Risks We Are Less Worried About (For Now)
Not every headline risk deserves equal space in your portfolio decisions. These are risks we continue to monitor closely, but they are not central to how we are positioning portfolios for 2026.
| Risk Event | Description & Our 2026 View | Probability in 2026 |
|---|---|---|
| Global Inflation Resurgence | After the post-pandemic spike, global inflation has eased meaningfully as supply chains normalised and goods prices cooled. The main risk in 2026 comes from localised shocks – food (weather), energy (geo-politics), or tariff pass-through, rather than a broad, synchronised inflation surge. Central banks are now more alert to second-round effects, which limit the odds of inflation “getting away” again. For India, with headline inflation far away from target, this sits in the monitor, not the panic bucket. | 🟡 Medium |
| Global Recession | Growth has cooled from the post-reopening surge, but not evenly. The U.S. has held up better than expected, while the Euro area continues to struggle with weak demand and tighter conditions. Labour markets have cooled without collapsing, and household balance sheets are not as stretched as in past cycles. A global hard landing is therefore a tail risk, likely triggered only if multiple shocks (oil, policy error, credit event) hit together. For India, external demand would soften, but domestic drivers remain relatively strong. | 🟡 Medium |
| Climate-Related Global Shocks | Climate risk is structurally important, but for 2026, the probability of a single, synchronised global climate shock derailing markets is relatively lower than geopolitics or policy moves. Instead, the risk lies in a series of regional weather events and policy tweaks that nudge inflation or sector earnings rather than breaking the cycle. For India, local monsoon dynamics matter more than global climate treaties in the near term. | 🟢 Low |
| Elections Creating Policy Shocks | Major elections (US midterms, European elections, others) bring policy noise around trade, fiscal policy, and regulation, but markets increasingly discount election rhetoric versus actual implementation. India faces fewer election-driven disruptions in 2026. | 🟢 Low |
The absence of these tail risks does not imply calm markets. It implies volatility without panic, a far more nuanced environment. If they flare up, the table below shows where the pressure points are likely to be.
| Risk | Impact on Global Asset Classes | Impact on Indian Asset Classes |
|---|---|---|
| Global Inflation Resurgence | U.S. Government Bonds ▼ U.S. Value & Commodity-linked Equities ▲ | Indian Government Bonds ▼ Gold (INR) ▲ Indian FMCG Sector ▼ |
| Global Recession | U.S. & Euro Area Cyclical Equities ▼ U.S. & Euro Area Defensive Equities ▲ U.S. Government Bonds ▲ | Indian IT Sector ▼ Indian Government Bonds ▲ Indian FMCG & Healthcare Sectors ▲ |
| Climate-Related Global Shocks | Global Agricultural Commodities ▲ Chinese Coal / Traditional Energy ▼ U.S. Renewables ▲ Global Shipping ▼ | Indian Oil Manufacturing Companies (OMCs) ▼ Renewable Developers ▲ Indian Power Utilities ▲ Coal India ▼ |
| Elections Creating Policy Shocks | U.S. High-Beta Sectors ▼ Euro Area Bank Equities ▼ USD Index ▲ | Indian Large Cap Equities ▲ FPI Equity Flows ▼ Gold (INR) ▲ |
How Risks Are Likely to Travel Through Markets
One of the most common mistakes investors make is assuming that every macro risk hits all assets at once. In reality, risks tend to follow a sequence.
In 2026, that sequence is likely to look like this:
| First impact: Currencies, commodities, and sovereign bond yields respond almost immediately. FX moves reflect shifts in capital flows and relative growth expectations, while commodities absorb geopolitical and supply-side shocks. |
| Second impact: Equity markets begin to reprice selectively. Earnings expectations adjust, valuation gaps widen, and sectoral leadership changes. This is where most of the return dispersion happens. |
| Third impact: Only if risks persist do they begin to affect credit spreads, real estate activity, and capital expenditure decisions. |
Our base case is that most 2026 risks stall at the second stage. However, higher-impact risks such as tariffs or a sustained geopolitical shock could spill into the third stage. That is uncomfortable for portfolios chasing momentum, but manageable for portfolios built around quality and balance.
Turning the Risk Radar into an Action Plan
- Large, domestically anchored companies are likely to handle trade shocks, currency moves, and growth scares better than leveraged or export-dependent smaller firms.
- With global rate paths diverging and inflation risks lingering, short-medium duration debt remains the most reliable anchor. This is not the time to stretch for yield or lock into long-duration bonds on the hope that rates will only go one way.
- Geopolitics, currency volatility, and debt concerns all argue for keeping some gold in the portfolio. Its job in 2026 is not to outperform equities, but to help clients stay invested when headlines get noisy.
- International exposure still matters, but the focus should be on balance, not chasing whichever market or theme did well last year. A measured global allocation helps manage currency risk and smooth portfolio outcomes when domestic markets wobble.
Taken together, the 2026 risk landscape argues against extreme positioning.
The dominant risks are global in origin, uneven in transmission, and more likely to influence relative returns rather than broad market direction. Portfolios built around leverage, narrow themes, or global trade sensitivity face greater stress. By contrast, assets with balance-sheet strength, pricing power, and domestic demand support are better placed to absorb shocks.
The goal in 2026 is not to avoid volatility but to ensure volatility does not force decisions at the wrong time.
A Health Check on India’s Macro Fundamentals
To balance our discussion on global risks, it’s important to ask a simpler question closer to home: how strong is India’s economy right now?
To answer that, we turn to the 1 Finance Sub-Indices, which track real-time economic momentum across key sectors. These offer a ground-level view of how India’s economy is holding up under pressure.
Here's how the economy is tracking across major dimensions as of November 2025:
| Service Sector Activity 👎 | Latest Month | Vs. Last Year | Vs. Last Month |
|---|---|---|---|
| The Services Activity Index is expected to remain in expansionary territory in early 2026. Growth is likely to continue due to robust demand for export services, rising digital adoption, and strong consumer spending on services. | 68.3 | -1.6% | +6.8% |
| Industrial Sector Performance 👎 | Latest Month | Vs. Last Year | Vs. Last Month |
|---|---|---|---|
| The Industrial Sector Performance Index is likely to show continued expansion in manufacturing activity through early 2026, largely driven by export demand, ongoing PLI incentives, and robust intermediate and capital goods output. | 50.3 | -12.8% | -10.6% |
| Agriculture Output 👍 | Latest Month | Vs. Last Year | Vs. Last Month |
|---|---|---|---|
| Based on above-normal rainfall in 2025 and robust sowing data, the Agriculture Output Index is projected to remain strong into early 2026, signalling healthy agricultural production trends. | 55.9 | +4.5% | +1.6% |
| Equity Market Optimism 👎 | Latest Month | Vs. Last Year | Vs. Last Month |
|---|---|---|---|
| With domestic liquidity favourable and strong private investor participation, the equity market is expected to remain bullish in the near term. However, broad-based upside may be limited without fresh catalysts. | 46 | -37.4% | -8.2% |
| Global Economic Impact 👎 | Latest Month | Vs. Last Year | Vs. Last Month |
|---|---|---|---|
| The Global Economic Impact Index suggests that India’s external sector will be tested by continued geopolitical uncertainties and fluctuating global commodity prices, but policy buffers such as forex reserves and active engagement in trade diversification will aid stability. | 32.5 | -29.3% | +16% |
| Financial Sector Soundness 👍 | Latest Month | Vs. Last Year | Vs. Last Month |
|---|---|---|---|
| The financial sector is forecast to maintain its soundness, with banks’ and NBFCs’ strong buffers and healthy balance sheets supporting credit supply and risk absorption in the near term. | 67.6 | +2.9% | -4.1% |
| Consumer Inflation Index 👍 | Latest Month | Vs. Last Year | Vs. Last Month |
|---|---|---|---|
| The Consumer Inflation Index suggests that headline inflation is likely to remain broadly contained in early 2026, barring weather-related shocks. | 54.6 | +10.3% | +0.4% |
*Data as of November 2025, hence growth comparisons are for November 2024 for Y-o-Y and October 2025 for M-o-M growth comparison.
Looked at together, the signals point to an economy that is uneven, but not vulnerable. Growth isn’t moving in a straight line, and it isn’t lifting every sector at the same pace. But the underlying structure is holding.
But here's the reassuring part: the fundamentals haven't cracked. Services remain in expansion territory, helped by steady consumption. Agriculture has quietly played a stabilising role, with favourable monsoons improving output expectations, and financial conditions look healthy.
This matters in the context of our Risk Radar. It suggests that while India will not be immune to global volatility, it is better positioned than many peers to absorb pressure without slipping into instability.
For investors and policymakers, 2026 shapes up more like a year to buckle down than freak out. Play the long game: stay patient, stick to discipline, and lean into what's backed by real Indian demand, not fleeting headlines.
