All eyes are on Donald Trump as the U.S. president takes global stage at the 2026 World Economic Forum in Davos, with investors bracing for policy cues that could rattle markets already strained by geopolitical tensions and trade uncertainty.
The forum, held from January 19 to 23 in Davos, Switzerland, gathers leaders across governments, corporations, and institutions under the theme 'A Spirit of Dialogue.' But behind the scenes, the mood is one of caution. Markets are anxiously watching how Trump's policies particularly his proposed tariffs and trade posturing will play out.
"It's going to be volatile days ahead," said Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments. "If Trump walks his talk and imposes 10% tariffs on the eight European countries from February 1, and raises them to 25% from June, retaliation is almost certain. A trade war would impact global growth and markets negatively."
While Trump's stance on Europe is expected to grab headlines, concerns also mount over the delayed India-U.S. trade deal. Despite several negotiation rounds, a breakthrough remains elusive. Adding to uncertainty, Trump has backed the Russia sanctions bill, which could impose tariffs as high as 500% on countries that continue purchasing Russian oil, a move that could hit India hard.
Market sentiment reflects this tension. FIIs have sold Rs 8,400 crore worth of Indian stocks in January alone and recorded record outflows of $18.8 billion in 2025, according to Motilal Oswal Financial Services. The selling trend began in July and has persisted due to rich valuations, slowing earnings, and macro risks.
However, Q3 earnings expectations offer some hope. JM Financial estimates Nifty50's PAT to grow 9.8% YoY in Q3FY26, driven by strong showings in IT, autos, telecom, metals, and industrials. Axis Securities expects revenue and EBITDA to rise 11.8% and 9.7% YoY, respectively.
Still, analysts say earnings growth alone may not be enough to lure back foreign investors unless the trade backdrop improves.
"The economy badly needs an India-US trade deal," said Vijayakumar. "Without it, India's macro stability will be threatened, wider trade deficits, a weakening rupee, and more capital flight."
Shrikant Chouhan of Kotak Securities and Ajit Mishra of Religare Broking both recently emphasized that while strong earnings may help, sustained FII inflows will depend on weaker U.S. markets, falling bond yields, and improving trade clarity.
As Trump prepares to address Davos, investors will be parsing every word. With global capital in search of stability and returns, the impact of Trump's next moves on tariffs, sanctions, and trade deals may shape the direction of emerging markets well into 2026.
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