Central banks worldwide, led by the US Federal Reserve and European Central Bank, have shaped equity markets through aggressive rate cuts in 2025 amid cooling inflation and recession fears. The Fed’s three consecutive 25-basis-point reductions since September have fueled a tech-led rally on the S&P 500, boosting valuations for growth stocks while pressuring bank margins. Meanwhile, geopolitical tensions—like US-China trade frictions and Middle East supply disruptions—have amplified volatility, with oil-sensitive sectors swinging 5-10% on policy headlines. Investors now price in softer landing scenarios, but hawkish surprises could trigger sharp corrections, underscoring the need for diversified portfolios.

In India, the RBI’s shift to a neutral stance in December 2025, holding rates at 6.25% while signaling potential cuts in 2026, has steadied the Nifty 50 amid robust GDP growth above 7%. Fiscal policies like extended PLI schemes for manufacturing and EV incentives have propelled auto and renewable stocks, with Tata Motors and Adani Green gaining 15-20% YTD. However, global spillovers—such as US tariff threats—pose risks to export-heavy IT and pharma sectors, potentially widening the India VIX. For retail investors, tracking policy minutes and budget announcements remains crucial for timing entries in fundamentally strong names.