Indian equity markets are being weighed down primarily by sustained foreign investor selling rather than disappointing corporate earnings, according to Sandip Sabharwal of asksandipsabharwal.com in an interview with ET Now. The market expert noted that early earnings trends have been largely stable, with IT companies reporting results better than muted expectations and smaller financial firms delivering acceptable numbers.

FII Outflows Dominate Market Sentiment

Persistent foreign institutional investor (FII) outflows are the primary driver of current market weakness, with nearly ₹4,000-5,000 crore flowing out in the previous session alone. According to Sabharwal, recent tax changes combined with rupee depreciation have made India relatively less attractive for foreign investors.

Sabharwal added that concerns around tax claims, such as the case involving Flipkart, are unlikely to materially worsen the foreign portfolio investor outlook, as those rulings relate to operational entities rather than portfolio investors. "Foreign capital is moving to markets that are delivering strong returns right now, such as Korea," he said, noting that a more favourable tax environment could have improved inflows at the margin.

IT Sector Shows Stability with Limited Upside

On the IT sector, Sabharwal observed that low expectations have helped stocks react positively to earnings beats, citing movements in Infosys and TCS. However, he does not expect meaningful upside for large IT firms. "These are steady, low-risk businesses now. On market declines, they can offer 10-15% returns over time, but not much more," he explained, adding that industry growth is gradually improving from a no-growth phase to a 4-5% trajectory.

Sector-Specific Investment Outlook

Sabharwal believes real estate stocks are offering value after sharp corrections from recent highs. Despite concerns around job losses and slower sales, lower interest rates and stable rental income are supporting the sector. "Larger real estate companies with strong rental portfolios, especially those near 52-week lows, look attractive at current levels," he said.

Regarding Jio Financial Services, Sabharwal remained cautious, pointing out that most of its valuation is driven by treasury assets rather than operating scale. While lending growth appears strong quarter-on-quarter, he noted this is largely due to a low base and that valuations remain stretched.

Banking and Capital Markets Preferences

Sabharwal highlighted that asset management companies and annuity-style capital market businesses are better positioned than brokerage firms, which remain dependent on market volumes. "AMC earnings have been strong, AUM growth is steady, and valuations have corrected—making annuity plays more attractive than transactional ones," he said.

Despite strong recent results from PSU banks, Sabharwal maintains his long-term preference for private sector banks, flagging deposit mobilisation as a structural challenge for PSU banks, especially among younger customers. "The only PSU bank we own is State Bank of India, as it continues to defend its deposit market share," he said.

Commodity and Large-Cap Views

While remaining positive on metals in the near term, Sabharwal warned that commodity prices appear parabolic and could see sharp corrections. He cautioned investors entering metal stocks late in the cycle to exercise caution. On Reliance Industries, he said the stock looks reasonable after a near 10% correction, with strength expected in the refining and telecom businesses, even as retail performance remains under scrutiny.

Indian equity markets are poised for a cautious opening on Friday as multiple global headwinds continue to influence investor sentiment. Despite Gift Nifty trading at 25,786, signaling a positive headstart of approximately 76 points for the Nifty, market participants remain wary of fast-changing geopolitical developments and trade-related uncertainties.

Market Sentiment and Global Factors

Ponmudi R, CEO of Enrich Money, highlighted the prevailing cautious mood in the markets. "Indian equity markets are set to begin the session on a cautious, range-bound note as multiple global headwinds continue to cap risk appetite," he stated. The ongoing geopolitical developments and tariff-related uncertainties are creating near-term visibility challenges, preventing investors from taking aggressive positions.

The market sentiment remains further constrained by persistent foreign institutional investor outflows and mixed reactions to Q3 earnings results. This combination has led market participants to adopt a more selective and defensive investment approach. Asian markets are displaying mixed trends in early trading, with Japanese and Chinese indices showing mild losses while South Korean equities demonstrate relative strength.

Domestic Economic Outlook

Despite global challenges, India's domestic fundamentals present a more optimistic picture. Pawan Kumar, Chief Investment Officer at Neo Wealth Management, emphasized the country's strong economic positioning in their yearly outlook assessment.

The positive outlook is supported by several key factors including increased government spending, robust rural economic activities, and an uptick in manufacturing sector performance. Kumar noted that India remains the only large economy likely to report GDP growth higher than its long-term averages while maintaining inflation rates below historical norms.

Large-cap indices appear fairly priced with expectations of double-digit profit after tax growth over the next 2-3 years. This growth trajectory is anticipated due to favorable base effects, improving economic activity, low interest rates, and government reforms including GST rationalization.

Derivatives Market Signals

The derivatives segment provides clear insights into market expectations and trader positioning. Dhupesh Dhameja, Derivatives Research Analyst at SAMCO Securities, observed that the derivatives setup mirrors the sideways-to-bearish undertone seen in the cash market.

Call writers have aggressively established fresh positions at at-the-money and nearby strike prices, effectively creating a ceiling for near-term upside movement. Meanwhile, put writers have concentrated their positions at lower strikes, suggesting market expectations of range-bound trading with limited downside potential.

The significant open interest buildup of nearly 1.13 crore contracts at the 26,000 call strike establishes this level as a key near-term resistance point. Additionally, the increase of around 50.80 lakh call contracts at the 25,600 strike reinforces the overhead supply pressure.

Market Challenges and Focus Areas

While domestic fundamentals remain supportive, several factors are weighing down the overall market assessment. The expensive valuations in mid-cap and small-cap segments, substantial equity supply from Indian promoters, and uncertainty surrounding India-U.S. trade negotiations present ongoing challenges. Expected decline in global economic activities adds another layer of concern for market participants.

Today's trading session is expected to remain largely stock-specific, driven by December-quarter earnings announcements and management commentary. Investors will closely monitor developments in the Middle East, particularly any potential disruptions to oil supplies that could impact energy prices and broader market sentiment.