Foreign institutional investors (FIIs/FPIs) net sold ₹2,550 crore worth of Indian equities on January 22, while domestic institutional investors (DIIs) provided strong counterbalance by net buying ₹4,223 crore worth of shares, according to provisional exchange data. Despite the foreign selling pressure, Indian equity markets managed to end the session on a positive note amid volatile trading conditions.

Institutional Investment Flows

The institutional trading activity on January 22 showed a clear divergence between foreign and domestic investors:

For the year-to-date period, the trend continues with FIIs being net sellers worth ₹36,587 crore, while DIIs have net purchased shares worth ₹50,718 crore, highlighting the sustained support from domestic institutional investors.

Market Performance and Volatility

Indian equity markets ended January 22 on a volatile but positive note despite choppy trading and cautious sentiment. The benchmark indices showed resilience:

Market breadth remained positive throughout the session, indicating selective buying interest among investors. The Nifty 50 opened strongly and touched an intraday high of 25,435 but failed to sustain higher levels due to selling pressure at elevated zones. The index subsequently slipped below the 25,300 support level, hitting an intraday low of 25,168, before recovering to close at 25,289.90.

Technical Analysis and Key Levels

According to Choice Broking's market analysis, the Nifty managed to hold above its 200-day DEMA, highlighting underlying support despite the intraday volatility. Key technical levels for the Nifty include:

• Immediate Resistance: 25,400–25,450 zone
• Key Support: 25,100–25,150 zone
• Daily RSI: 33.82 (trending upward, signaling mild momentum improvement)

The Bank Nifty also demonstrated similar volatility patterns, opening strong and surging nearly 850 points to an intraday high of 59,573.10 before witnessing profit booking that dragged the index below 59,000 to an intraday low of 58,823. The index later recovered to close at 59,200, indicating buying interest on declines.

Volatility and Market Sentiment

Market volatility showed signs of easing, with India VIX declining 3.12% to 13.35, indicating reduced fear among market participants. Derivatives data revealed heavy call writing at the 25,400 strike and significant put writing at the 25,200 strike, establishing this range as a key near-term pivot for the markets.

Indian equity markets are witnessing significant volatility ahead of the Union Budget 2026, as investor focus intensifies on sectors positioned to benefit from sustained government spending and policy continuity. Defence and infrastructure stocks have emerged as leading sectoral preferences, reflecting market expectations for continued public capital expenditure and strategic budget allocations.

Defence Sector Takes Lead in Pre-Budget Positioning

According to a pre-Budget survey of smallcase managers, defence has emerged as the top sectoral bet among market participants. The optimism stems from expectations of higher budget allocations driven by three key factors:

• Indigenisation initiatives promoting domestic manufacturing capabilities
• Military modernisation programs enhancing operational readiness
• Export-led growth strategies expanding India's defence manufacturing footprint

This positioning reflects confidence in the government's continued emphasis on strengthening domestic defence capabilities while reducing import dependence.

Infrastructure Maintains Strong Appeal

Infrastructure follows closely as the second-most favoured sector, underpinned by sustained confidence in the government's development agenda. Market participants expect continued momentum across multiple infrastructure verticals:

The sector's appeal stems from its role in supporting long-term economic growth through sustained capital deployment and job creation.

Capex Themes Dominate Portfolio Strategies

The survey highlighted that market participants continue to favour capital expenditure-led investment themes. Manufacturing has also attracted significant attention, with expectations of continued policy support through production-linked incentive schemes. This preference aligns with the government's focus on structural growth sectors over broad-based fiscal stimulus.

In contrast, consumption and agriculture sectors are expected to benefit from more targeted policy measures rather than comprehensive spending programs, consistent with the administration's emphasis on fiscal discipline.

Market Outlook and Volatility Expectations

While optimism for structural growth sectors remains intact, market participants anticipate short-term volatility around the Budget announcement. This expected turbulence is attributed to event-based positioning and potential policy surprises that typically accompany major fiscal announcements.

However, the consensus view suggests such volatility will likely prove temporary, with markets expected to revert to fundamental drivers including earnings growth, liquidity conditions, and macroeconomic stability in the weeks following the Budget.

Medium-Term Projections Show Confidence

Reflecting underlying confidence in India's equity markets, smallcase managers project the Nifty 50 to close FY26-27 above the 25,000 mark. A significant proportion of respondents forecast levels well beyond 27,500, underscoring a constructive outlook for Indian equities over the medium term.

Macro expectations also remain supportive, with a majority of managers forecasting inflation in the 4-5% range for FY27. This benign inflation outlook reinforces expectations for policy continuity and provides fiscal space for maintaining capital expenditure focus without compromising stability.

"As managers anticipate volatility around the Budget but remain confident about the medium-term trajectory, smallcase continues to offer a structured way for investors to participate in these themes with clarity and discipline," said Vasanth Kamath, Founder & CEO, smallcase.