⚠ Dominant shock: US-Israel joint strikes on Iran (28 Feb 2026) · Strait of Hormuz near-halt · Brent peaked $119.50/bbl · All six macro variables being repriced around this single event
Global
India
01
Central bank policy rates
both on hold
Fed at 3.50–3.75% after three consecutive cuts in H2 2025. RBI paused at 5.25% after an aggressive 125bp easing cycle from 6.50%. The Iran war has frozen further action from both. Market now pricing just one Fed cut in 2026, pushed out to September. Kevin Warsh nominated as next Fed Chair (May 2026).
Fed Funds Rate
3.50–3.75%
On hold · Jan 2026
RBI Repo Rate
5.25%
Paused · Feb 2026
RBI − Fed spread
+1.60%
Narrowed from +1.90%
Market pricing 1 Fed cut in 2026 (Sep). Any further oil-driven CPI uptick eliminates even this — stagflation risk is the tail scenario.
Warsh nomination adds hawkish overhang to forward guidance even if the rate path itself stays unchanged through mid-2026.
RBI 125bp transmission still working: weighted average lending rate on new loans down 105bp. The stimulus is in the system — just frozen from adding more.
Fed Funds (mid)RBI Repo
India impact
RBI–Fed spread at +1.60% and narrowing. Below +1.25% rupee pressure intensifies — RBI forced to sell USD, tightening domestic liquidity as a side effect.
No more cuts in sight for FY27. Rate-sensitive sectors (banking, real estate, NBFCs) must wait for oil resolution before re-rating.
Watch: March 18–19 Fed dot plot language on oil and inflation. Any hawkish pivot re-prices EM risk globally — India is first to feel it.
02
Bond market yields
curve un-inverted · bear steepening
US 2Y–10Y spread at +57bp — the yield curve has decisively un-inverted from the deep 2023–24 inversion. Structurally a 6–12 month early recovery signal. But the current steepening is “bear steepening” — 10Y rising on Iran war inflation fears, not growth optimism. Q4 2025 GDP was revised sharply lower to 0.7%.
US 10Y Yield
4.27%
↑ +13bp this week
US 2Y Yield
3.70%
Short end easing
2Y–10Y Spread
+57bp
Positive · steepening
Curve un-inversion = genuine structural recovery signal. Historically precedes EM equity bull markets by 6–12 months. The 2023–24 inversion is definitively over.
Bear steepening (10Y up from inflation premium, not growth) is less bullish for equities. US 10Y above 4.30% = global equity P/E compression begins.
India 10Y G-Sec at ~6.71%, a 3-week high — rising despite RBI cutting 125bp. Three forces: oil inflation expectations + ₹17.2T FY27 borrowing + Bloomberg bond index inclusion delay.
US 10YUS 2Y
India impact — G-Sec
Real rate (6.71% − 3.21% CPI) = +3.50% — among India’s highest in modern history. Compelling long-duration entry point if March CPI stays benign.
Key risk: if India CPI prints 4.5%+ in April, rate hike expectations emerge — G-Sec yields could spike to 7.0–7.25% with no actual RBI action. Tightening through expectations alone.
RBI OMOs (₹3.5L crore in FY26) actively fighting the yield rise. Expect continued support through Q1 FY27.
03
Dollar Index (DXY)
structurally weak
DXY ~100, down from 108 in Jan 2025 — driven by Fed cutting, US fiscal expansion, and de-dollarisation trend. Broadly EM-positive. India faces a paradox: the rupee has weakened past ₹90 despite a weak dollar, due to India-specific oil risk overwhelming the EM tailwind. INR is underperforming within the EM universe.
DXY Level
~100
52-wk range: 95.55–104.68
USD / INR
~₹90+
RBI discomfort threshold
India Forex Reserves
~$660B
Near record · 12mo import cover
Structural dollar weakness is an EM tailwind — driven by Fed cutting + US fiscal expansion + de-dollarisation. Medium-term trend is dollar bear.
INR above ₹90: RBI selling USD to defend = tightening domestic INR liquidity as a side effect. A monetary paradox — wants to ease, but defending the rupee tightens.
Watch: DXY below 98 = strong EM tailwind. Rebound above 102 = reversal signal. Currently at 100 — the hinge point.
DXY
India impact — INR
INR at ₹90+ is a compound problem: every ₹1 depreciation adds ~15–20bp to imported inflation, tightens RBI’s hands, and deters FII debt flows simultaneously.
RBI explicitly flagged ₹90+ in the Feb 2026 MPC as a constraint on cutting. $660B reserves allows intervention — RBI will cap downside but not fix a hard line.
Both Feb CPI prints are stale — collected before the Feb 28 Iran strikes. US at 2.4% YoY (stalled 4 months above Fed target). India at 3.21% (benign, new 2024 base year). March prints (~Apr 11) are the most important upcoming data event — first to capture the full oil shock.
US CPI (Feb YoY)
2.4%
Core 2.5% · stalled
India CPI (Feb YoY)
3.21%
New 2024 base · benign
US CPI if oil holds
~3.5%
J.P. Morgan forecast
India CPI risk
4.5–5.0%
Nomura if oil sustained
US: Moody’s estimates true inflation ~2.7% (government shutdown data gap distorts official 2.4%). Tariff pass-through visible — apparel +1.3% in Feb, biggest jump since Sep 2018.
India CPI 3.21% is very benign — food at 3.47%, both well inside RBI’s 2–6% band. But this is entirely pre-oil-shock data.
March prints are the first real read. If US approaches 3.0%+ and India approaches 4.5%, all rate cut expectations for 2026 and FY27 are eliminated in one data release.
US CPI YoY%India CPI YoY%
India impact
Per $10/bbl oil rise: India CPI +40–60bp, CAD +30–40bp of GDP. At $103 vs $70 baseline, the implied CPI add is 1.2–1.8% — pushing from 3.21% toward 5%.
India food inflation (3.47%) is the internal variable to watch. Structural food deflation gave RBI room to cut 125bp. Any reversal compounds the oil shock significantly.
05
Global liquidity
tide turning
Global liquidity is at a genuine inflection — turning from tightening toward neutral-to-expanding. Fed cut 175bp since Sep 2024. RBI injected ₹3.5L crore in OMOs. This is the fundamental driver of the next risk-on phase. The Iran shock is the primary obstacle to this transition proceeding smoothly.
Fed Balance Sheet
~$7.2T
Stabilising · reserve mgmt
RBI OMOs (FY26)
₹3.5L Cr
Massive domestic injection
G4 CB stance
Neutral
Turning from tightening
Fed authorised $40B/month reserve management purchases through Apr 2026 — not QE, but stabilises balance sheet and prevents reserve scarcity.
BoJ wildcard: Japanese yields rising on political and fiscal uncertainty. Any disorderly BoJ move = yen carry unwind = violent global liquidity contraction event.
RBI system surplus ~₹75,000Cr/day — below 1% NDTL comfort but direction is right. Expect continued OMOs through Q1 FY27 to support transmission.
Fed Balance Sheet ($T)
India impact
RBI system liquidity surplus ~₹75,000Cr/day — below 1% NDTL comfort (₹2L Cr) but direction is right. Expect continued OMOs through Q1 FY27.
Global liquidity expansion = risk-on = FII equity and debt inflows into India. This structural tide is building — Iran shock is a temporary dam, not a drought.
India markets pulse
March 2026
Nifty 50
~23,200
Rangebound · DII-supported
FII equity (MTD)
Net seller
Iran risk + US 10Y rising
DII equity (MTD)
Net buyer
SIP flows absorbing selling
Monthly SIP inflows
~₹26,000Cr
Structural floor for markets
Segment
Current read
Change vs last month
Large caps
Rangebound
Flat — DII buying offsetting FII outflows
Mid caps
Under pressure
FII outflows hitting mid-caps more than large-caps
Small caps
Weak
Risk-off environment weighing on small-cap premium
India VIX
Elevated
Iran uncertainty keeping implied volatility bid
Gold (INR)
Strong
War premium + weak INR amplifying the global move
India 10Y G-Sec
6.71% · rising
Oil inflation expectations driving yield higher
One-line read: Markets are in a holding pattern — DII SIP flows (~₹26,000Cr/month) are preventing a sharp correction, but FII outflows and Iran uncertainty are preventing a rally. The market is waiting for the oil binary to resolve. Until it does, quality large caps with strong balance sheets is the right posture.
India scenarios
March 2026 · updated monthly
Three scenarios. One key binary — Iran deal or no deal. Structural India fundamentals (7%+ GDP, ₹26,000Cr SIP, ₹17.2T capex) are intact in all three. The question is timeline and near-term pain.
A — Iran deal · Hormuz reopensProbability: 35–40%
Trigger: Diplomatic deal in 4–8 weeks. Hormuz fully reopened. Oil falls to $70–80/bbl.
Nifty (6–9mo)
26,000–28,000
USD/INR
₹84–87
10Y G-Sec
6.2–6.4%
RBI
2 cuts in FY27
Position: Aggressively long banking, real estate, infra, auto, NBFCs. Reduce IT and defensives. INR-linked plays outperform strongly.
B — Stalemate · Oil $90–100Probability: 45–50%
Trigger: No escalation, no resolution. Oil stabilises $90–100. Diplomatic talks ongoing but inconclusive.
Nifty range
22,000–24,500
USD/INR
₹88–92
10Y G-Sec
6.6–7.0%
RBI
On hold FY27
Position: Quality large caps (low debt, domestic demand). IT and pharma as defensive USD earners. Gold as hedge. Avoid high-leverage names.
C — Escalation · Oil $110+ · stagflationProbability: 15–20%
Trigger: Conflict expands. Hormuz blocked 3+ months. US CPI breaks 3.5%. Fed hints at hike.
Nifty downside
19,000–21,000
USD/INR
₹93–96+
10Y G-Sec
7.0–7.5%
RBI
Emergency action
Position: ONGC/OIL India upstream, gold, pharma exports only. Avoid aviation, FMCG, auto, real estate. Short duration bonds. Build cash.
Structural anchor: India’s 7%+ GDP growth, ₹26,000Cr/month SIP flows, ₹17.2T govt capex, falling structural inflation, and deep domestic demand pool are intact in all three scenarios. The Iran shock is a duration risk, not a structural derailment. The question is not whether to be long India — it is when.
Triggered section · active while Brent moves >10% in a month or sustained above $90/bbl
Oil deep-dive
Iran war · geopolitical crisis
US-Israel launched joint strikes on Iran on 28 February. The Strait of Hormuz — through which ~20mb/d of crude transits — was near-halted. Brent spiked from $70 to $119.50/bbl, the biggest supply disruption since 1973 per the IEA. Currently ~$103. Diplomatic signals are cautiously positive: Trump called talks “very good” (Mar 9), Iran approved Indian LPG tankers (Mar 13).
Brent (15 Mar)
~$103/bbl
↑ from $70 pre-war
Peak (2 Mar 2026)
$119.50/bbl
Biggest shock since 1973
India annualised impact
+$30B+/yr
vs $70 pre-war baseline
Strait of Hormuz near-halt: ~20mb/d disrupted. IEA March 2026 cut 2026 global demand growth forecast by 210kb/d to 640kb/d — high prices destroying demand even as supply is disrupted.
India triple-hit simultaneously: (1) CAD widens ~100bp of GDP, (2) CPI +40–60bp per $10/bbl rise, (3) fiscal subsidy pressure returns.
Key watch: any formal Iran deal or Hormuz reopening = $20–30 immediate oil relief. At $70–75, all of India’s near-term headwinds evaporate rapidly.
J.P. Morgan: if oil holds $100+, US CPI rises to 3.5% by year-end and no Fed cuts in 2026. The Fed’s hands are effectively tied.
Brent $/bblPre-war baseline
India watch levels
Below $85: CAD fears ease, INR recovers, RBI cut back on table — relief rally trigger across all rate-sensitive sectors.
$85–100: Current base. Managed pain. RBI on hold. Rupee ₹88–92. Markets rangebound. Defensive positioning.
Above $110: India CPI →5%+. RBI emergency measures. Rupee ₹93–96+. Avoid all risk assets. Build cash and gold.
Q1 2026 baseline · next update: June 2026 or on major policy/macro condition change
Sectoral matrix · Q1 2026
now vs relief scenario
Now = Oil $100+, rates on hold. On deal = Oil $70, rate cuts resume.
Sector
Current (oil $100+, on hold)
Relief (oil $70, cuts resume)
Now
On deal
Banking / BFSI
RBI on hold limits NIM expansion. Credit intact but rate-cut catalyst absent. Rising G-Sec compresses bond books.
Best rate-cut play. NIM improves + bond books re-rate. PSU banks and NBFCs lead.
Neutral
Strong buy
Oil & Gas
ONGC/OIL surge on high crude. GAIL benefits from LPG scarcity. OMCs (BPCL/HPCL) face under-recovery margin squeeze.
Upstream normalises. OMCs recover margins. Net neutral to slight positive overall.
Buy upstream
Neutral
IT / Tech
Defensive. ₹90 INR = 3–4% revenue tailwind for USD earners. Pipelines steady. Insulated from oil.
Rupee strength reverses USD tailwind. Rotate out as cyclicals re-rate. Valuations stretched.