Indian shares eye muted start after two-day rally, Fed rate pause

India’s stock benchmarks are poised to open little changed on Thursday, following two sessions of gains fueled by the agreement of a trade deal with the European Union and the US Federal Reserve’s overnight pause, which was widely expected.

Attention now shifts to the Union budget for fiscal year 2026–27, due February 1, for signals on the trajectory of economic momentum and corporate earnings in the world’s fastest-growing major economy. Markets will operate in a special Sunday session.

Gift Nifty futures were at 25,373.5 as of 7:58 a.m. IST, pointing to opening levels near Wednesday’s Nifty 50 close of 25,342.75.

The Nifty and Sensex have each added roughly 1% over the last two sessions, supported by improved sentiment after the announcement of a EU free trade agreement on Tuesday, which will see the EU slashing all tariffs on 90% of Indian goods.

That rebound still only papers over a subdued start to 2026. Foreign selling has continued after record outflows of about $19 billion in 2025, amid persistent U.S. tariff concerns, while earnings from some index heavyweights have fallen short of expectations.

Foreign investors net sold $4.56 billion of Indian equities this month through Wednesday. Month-to-date, the Nifty is down about 3%, with small-and mid-caps 5.2% and 3.4% lower, respectively, signalling broad-based risk aversion.

On the day, Asian markets  opened 0.5% lower, while Wall Street equities posted modest gains after the Fed held rates steady, citing still-elevated inflation and solid growth. Markets are not pricing another Fed cut until the June meeting.

Higher U.S. rates make emerging markets like India less attractive as they support the dollar and U.S. Treasury yields.

In stocks, Larsen & Toubro will be tracked after missing profit estimates on tepid orders and a one-time labour code charge, though brokerages remain constructive about the long-term. SBI Cards and Payment Services could see support after reporting a profit surge tied to festive demand.