Indian markets are navigating a high-stakes environment this week as pivotal economic shifts and trade breakthroughs redefine the outlook for the rupee and domestic bonds. Foreign Portfolio Investors (FPIs) have staged a notable return, injecting over 8,100 crore into Indian equities during the first week of February. This follows a massive 1.66 lakh crore outflow in 2025 and a further 35,962 crore withdrawal in January. The sudden reversal is largely credited to the historic India-U.S. trade deal, which reduced tariffs on Indian exports from 25% to 18%. The Indian Rupee has responded with its strongest performance in years, rallying from lows near 92.10 to settle around 90.70 against the U.S. dollar. Analysts anticipate the currency could test the 89.50 level by March, though the Reserve Bank of India (RBI) remains active in the market to prevent excessive appreciation and maintain export competitiveness. Inflation remains a central focus as the government prepares to release January retail data on February 12. This release will mark the debut of a new CPI series rebased to 2024, designed to better reflect modern consumption patterns by reducing the weight of food from 46% to approximately 37-39%. Headline inflation for 2025-26 is projected to hover near 2.1%, giving the RBI room for potential policy maneuvers. In the bond market, the 10-year benchmark yield recently settled near 6.74%. Investors are currently managing a delicate balance between high supply and tight liquidity. The Union Budget has outlined a gross borrowing target of 17.2 trillion for the upcoming fiscal year, a 17% increase that has kept yields elevated despite the RBI holding the repo rate steady at 5.25%. Traders are now shifting their attention to industrial production figures and upcoming quarterly earnings to gauge the sustainability of the current rally. While the trade deal has provided a massive sentiment boost, high equity valuations and global interest rate trajectories remain the primary risks for the weeks ahead. [India Market Update](https://www.youtube.com/watch?v=z01RGOV-ZNw) This video provides an expert breakdown of the February 2026 debt market outlook, covering the impact of new borrowing targets on bond yields. http://googleusercontent.com/youtube_content/0