Finsphere
Issue 24 | February 2026 
Your Monthly Guide on Global and Local markets from our Business Head’s Desk. 
India’s Global Trade Push Gains Speed!
FTA breakthroughs, budget stability & policy continuity fuel optimism for exports & long-term growth.
Dear Clients and Stakeholders,
The past few weeks have been excitingly eventful with India announcing a blockbuster Free Trade Agreement (FTA) with EU which has been dubbed “the mother of all deals” which was swiftly followed by another blockbuster announcement by US President Donald Trump of a trade deal with India on Truth Social. With strong domestic consumption already anchoring the economic growth engine and continued policy support from the government, the back-to-back trade deal announcements have propelled India’s exports market from the gates of possibility to the corridors of opportunity.
After nearly two decades of negotiations, India and the EU announced an FTA on January 27th, the pact paves the way for freer trade in goods and services between the 27-nation EU and India, together representing a market of roughly 2 billion people. The EU has agreed to cut tariffs on 99.5% of goods imported from India over seven years, with tariffs to be cut to zero on Indian marine goods, leather and textile products, chemicals, rubber, base metals and gems and jewelry, India's trade ministry said in a statement. In return, India is offering to reduce tariffs on 97.5% of EU exports. The FTA is expected to be signed later in the year with implementation anticipated to be in CY27. With EU accounting for roughly 17% of India’s total exports in FY25 and a healthy trade surplus of USD 15.7 billion, the FTA bodes well for a bustling Indian business ecosystem.
On 2nd February, US President Donald Trump announced a trade deal with India that slashed US tariffs on Indian goods to 18% from 50% in exchange for India halting Russian oil purchases and lowering trade barriers, thus, bringing to a conclusion the protracted negotiations that has dragged on for months. Subsequently, the two nations announced an interim framework where both committed to providing preferential market access in sectors of respective interest on a sustained basis while simultaneously working towards finalizing a broader Bilateral Trade Agreement (BTA).
Amidst rampant progress on trade deals, the Indian Government laid before the Parliament, the Union Budget for FY27 on 1st February. The budget was more of a status quo from last year with framework largely intact, continuing to focus on the engines of growth, namely, agriculture, MSME and investment. The government placed larger emphasis on structural reforms, inclusive growth, harvesting demographic dividend while achieving overall development. Meanwhile, the path to fiscal consolidation is continuing to gain steam with projected fiscal deficit for FY27e now expected at 4.3% of the GDP, and improvement of 10 basis points from the previous year. Further, government debt / GDP ratio has been on a downward slope where GDP growth continues to outstrip incremental government borrowings.
With the Economic Survey pegging Indian economy to grow between 6.8% to 7.2% in FY27 and FY26 growth expected to be about 7.4%, a conducive export market backed by policy support by Government adds wind to the sails of India’s growth story.
United States
Growth resilience amid easing inflation and softening labour conditions
The US economy demonstrated strong momentum in Q3CY25, with revised estimates indicating GDP growth of 4.4%, the fastest in two years and well above both the prior quarter’s 3.8% growth and market expectations. The expansion was broad-based, driven by firm consumer spending, a sharp rebound in exports, and a recovery in government expenditure.
Inflation remained stable, with headline CPI holding at 2.7% in December while core CPI stayed unchanged at 2.6% – the lowest level since 2021, suggesting continued disinflation. However, upstream price pressures re-accelerated, as producer prices rose 0.5% in December while core PPI surged 0.7%, pushing annual core producer inflation to 3.3%.
Labour market conditions continued to soften gradually. Non-farm payroll growth remained subdued, with 50k additions in December, led by food services, healthcare and social assistance, while retail trade employment contracted.
The unemployment rate edged down slightly to 4.4%, though this reflected a decline in labour force participation while job openings falling sharply to 6.54 million in December – the lowest since September 2020 – driven by declines across professional services, retail and finance. Overall, the data for December suggested continued softness in labour market conditions.
Against this backdrop, the Federal Reserve kept the interest rates unchanged at 3.5%–3.75% in January, following three consecutive rate cuts last year which pushed the borrowing costs to their lowest level since 2022. The Fed reiterated that inflation remains somewhat elevated and that future moves will remain data-dependent.
Retail sales rebounded strongly in November, rising 0.6% month-on-month, supported by improving auto sales and resilient holiday spending. Industrial production for December, however, rose 0.4%, driven by gains in utilities and modest manufacturing expansion, though mining output contracted. Housing market conditions weakened materially. Pending home sales declined sharply by 9.3% in December, reversing four consecutive monthly gains and marking the steepest fall since April 2020, suggesting affordability constraints remain binding. At the same time, home prices continued to edge higher, with house prices rising 0.6% in November and annual prices up 1.9%, pointing to a market still supported by constrained supply even as demand softens.
Externally, the US trade deficit widened sharply in November to $56.8 billion, reversing October’s unusually narrow deficit. The widening reflected a sharp rise of 5% in imports, particularly pharmaceuticals and computers, while exports declined 3.6%, underscoring elevated month-to-month volatility amid the Trump administration’s shifting tariff stance.
Eurozone & UK
Continued concerns over economic growth
In the Euro Area, growth remained subdued but resilient. Flash GDP for Q4CY25 rose 1.3% year-on-year, marking its slowest pace in a year but easing only slightly from 1.4% in the Q3FY25. The ECB kept policy rates unchanged at its first meeting of 2026, with the refinancing rate at 2.15% and the deposit facility at 2.0%. Inflation dynamics remained contained, with CPI for January rising 1.7% year-on-year in January while producer price pressures remained weak, with PPI for December falling 2.1%. Against this backdrop, the ECB reiterated confidence that inflation will stabilize around the 2% target over the medium term.
Meanwhile, industrial production continued to strengthen, rising 0.7% month-on-month in November, supported by a sharp acceleration in capital goods output, and annual growth improved to 2.5%, the strongest since May. In contrast, retail sales softened, falling 0.5% in December, driven by a sharp decline in non-food retailing. Labour market conditions remained supportive, with unemployment edging down to 6.3% in November, the lowest since April, reinforcing the Eurozone’s resilience despite weak consumer momentum.
In the UK, the macro picture remains fragile. Industrial production for November rose 1.1% month-on-month, driven by a sharp recovery in manufacturing output, particularly transport equipment. Retail sales for December, on the other hand, rose 0.4% month-on-month and accelerating 2.5% year-on-year, supported by non-store retailing and holiday demand. Inflation ticked higher to 3.4% in December. Labour-market slack remained elevated, with unemployment steady at 5.1% – the highest since 2021 – even as employment increased modestly. Consequently, the Bank of England kept rates unchanged at 3.75% in February, though the vote split (5–4) highlighted rising internal pressure for a cut amid weakening growth.
Overall, with growth slowing down in both the EU area and UK amid signs of easing inflation in EU and persistence in UK presents divergent paths for the ECB and BoE for balancing growth and near-term inflation.
Asia
China’s growth slows further; Japan faces further rate hikes
China’s macro momentum continued to soften. GDP growth slowed to 4.5% year-on-year in Q4CY25, the weakest pace in three years, reflecting subdued consumer demand. Meanwhile, retail sales growth decelerated further to 0.9% year-on-year in December, marking the weakest pace since late 2022, with broad-based moderation across discretionary categories. Industrial activity, however, improved modestly. Industrial production rose 5.2% year-on-year in December, supported by stronger manufacturing growth amid government efforts to revive domestic demand. Labour market conditions remained stable, with urban unemployment unchanged at 5.1%. Monetary policy remained accommodative, as the PBoC kept the 1-year LPR at 3.0% and the 5-year LPR at 3.5% for an eighth consecutive month. Meanwhile, on the trade front, China posted a record USD 1.189 trillion trade surplus in 2025, with exports rising 5.5% while imports remained flat. In December alone, the surplus reached USD 114.1 billion, supported by strong export momentum to non-US markets as exporters diversified trade exposure amid expectations of prolonged tariff pressure under the Trump administration.
Japan’s macro backdrop remains more complex. Inflation continued to ease but remained above target, with core CPI rising 2.4% in December, while Tokyo core CPI moderated to 2.0% in January – aligned with the BoJ’s target and reinforcing expectations of normalization. Producer inflation eased to 2.4% year-on-year in December, the slowest since mid-2024, though cost pressures remained elevated. Industrial production fell sharply by 2.7% month-on-month in November, driven by declines in electronics, autos and fabricated metals, reflecting softer external demand.
Trade surplus narrowed to JPY 105.7 billion in December and much lower than expectations of a surplus of JPY 357 billion, as imports rose 5.3% while exports rose 5.1%. Labour market conditions continued to indicate softness, with unemployment unchanged at 2.6% – the highest since July 2024. Meanwhile, BoJ communication continued to emphasize further hikes, with minutes indicating policymakers remain committed to raising rates, though the pace will likely remain cautious amid weakening output and moderating inflation.
Overall, China continues to face slowing growth momentum despite policy support and a strong exports, while Japan’s outlook remains constrained by a difficult mix of weakening industrial activity alongside persistent inflation.
India’s Economic Pulse:
Robust domestic consumption and expanding exports market to spearhead economic growth
India’s macro indicators continued to reflect resilient domestic momentum. Industrial production strengthened further in December, rising 7.9% year-on-year, marking the fastest growth since October 2023 and exceeding expectations. The expansion was broad-based, supported by sustained manufacturing growth and improving mining and electricity output, reinforcing the view that domestic demand remains robust despite rising global uncertainty. Inflation remained benign, though normalization continued. Headline CPI rose to 1.33% in December from 0.71% in November, driven by reduced food deflation, but remained well below the RBI’s lower tolerance threshold of 2% for another month. Wholesale inflation rebounded meaningfully, with WPI rising 0.83% year-on-year, reversing three months of contraction, driven by accelerating manufacturing inflation and stabilizing food prices.
Labour market conditions remained supportive. Unemployment inched up marginally to 4.8% from 4.7% but labour force participation jumped to a high of 56.1%. Urban unemployment ticked up to 6.7%, while rural unemployment remained steady at 3.9%, suggesting continued resilience in rural employment conditions despite mild urban softness.
On the trade front, India’s trade deficit widened sharply to USD 25 billion in December, the largest December gap on record, driven by an 8.8% rise in imports amid a weaker rupee and shifting energy procurement dynamics. Exports rose only modestly by 1.8%, reflecting continued tariff pressure from the US. However, going forward, exports to US are expected to improve meaningfully after US President Donald Trump announced a reduction in tariffs from 50% to 18% even as the two countries push for a BTA.
Overall, India’s macroeconomic landscape reflects an optimistic trajectory with underlying industrial strength, robust domestic demand, and supportive policy measures - such as the introduction of GST 2.0, direct tax rate cuts, interest rate cuts along with a pro-growth stance of the RBI - anchoring the economy. Further, the back-to-back trade deal announcements is expected to add to robust domestic demand.
Conclusion
As we step into the new year, global markets continue to be shaped by evolving diplomatic trade relations amid persistent macro uncertainty brought forward by US tariffs. The US faces structural headwinds from tariffs while a cooling labor market keep markets on edge. The Eurozone and UK are balancing near term inflation and economic growth amid labor market slack, while Japan battles inflation and China navigate a slowdown in economic activity.
In contrast, India stands out for its relative stability. Strong domestic demand, supportive fiscal and monetary policies and moderating inflation and expanding exports market provides a resilient foundation for growth. As global uncertainties persist, India’s macroeconomic tailwinds and steady policy approach position the country to sustain momentum.
At Chola Securities, we remain steadfast in our commitment to helping you navigate these complexities with clarity and foresight. As always, we aim to align your investments with evolving opportunities while ensuring resilience against emerging headwinds.
We sincerely thank you—our valued clients and investors—for your continued confidence and partnership. Together, we look forward to embracing the challenges and opportunities of the months ahead, ensuring sustained growth and success.
Warm Regards,
N Senthilkumarh
President, Chola Securities