Foreign Portfolio Investors continued their selling streak in Indian equities on January 12, 2026, with net outflows of ₹3,638 crore, while Domestic Institutional Investors provided crucial market support through net purchases of ₹3,769 crore. Despite the foreign selling pressure, Indian equity benchmarks staged a remarkable recovery from intraday lows to close in positive territory.

Institutional Investment Flows

The trading session witnessed significant institutional activity across both foreign and domestic investor categories. The detailed breakdown of institutional flows reveals the contrasting investment strategies currently at play in the Indian market.

For the month so far, the trend remains consistent with FIIs net selling ₹15.20 crore worth of Indian equities, while DIIs have been net buyers to the tune of ₹22.70 crore. This marks the fifth consecutive session of net outflows by foreign institutional investors.

Market Performance and Recovery

The Nifty 50 index demonstrated resilience by recovering sharply from the day's lows to settle at 25,790 points, registering a gain of 0.4%. The index rebounded nearly 340 points during intraday trading, breaking a five-day losing streak. Market sentiment improved following the U.S. Ambassador's comments regarding ongoing efforts on an India-US trade deal, which encouraged buying at lower levels.

Broader market indices showed mixed performance, with the Nifty Midcap 100 declining marginally by 0.1% and the Nifty Smallcap 100 falling 0.5%. The divergent performance across market segments highlighted selective investor interest.

Sectoral Performance

Sectoral indices exhibited varied performance, with certain sectors leading the recovery while others faced selling pressure.

Nifty Metal emerged as the top performer with a 2% rise after declining for four consecutive sessions. Defense stocks garnered attention amid reports that the German Chancellor's visit to India could advance discussions on a $9.30 billion submarine manufacturing deal.

Market Outlook and Key Factors

Several factors are expected to influence market direction in the near term. Capital market stocks drew attention after the SEBI chief indicated a likely NSE IPO by the end of the month. On the macroeconomic front, India's December CPI inflation rose to 1.33% year-on-year from 0.71% in November, remaining well below the RBI's comfort level.

Market participants are now awaiting U.S. CPI data, which could provide further direction to global markets. The combination of continued foreign selling pressure and domestic institutional support is expected to keep markets range-bound with stock-specific action as the earnings season approaches.

Indian equity markets endured significant pressure during the second week of 2026, with major indices posting their worst weekly performance in over three months. The sustained selling pressure was driven by mounting concerns over potential US trade actions and broader geopolitical tensions that rattled investor confidence across emerging markets.

Market Performance Overview

The benchmark indices faced relentless selling pressure throughout the week, with all major segments declining significantly. The market turmoil resulted in substantial wealth erosion for investors as risk-off sentiment dominated trading sessions.

Sectoral Performance Analysis

The selling pressure was broad-based across sectors, with energy and infrastructure-related segments bearing the maximum brunt. However, some defensive sectors managed to buck the overall negative trend.

Worst Performing Sectors

Outperforming Sectors

• Defence: +1.30%
• Consumer Durables: +1.00%

Foreign Investment Outflows Intensify

Foreign institutional investors continued their aggressive selling stance, with equity outflows reaching ₹9,209.90 crore during the week. More significantly, FIIs have established an unprecedented bearish position in the derivatives market.

Historically, such extreme bearish positioning by foreign investors has typically led to double-digit returns over the following three to four months once a market bottom is established.

Geopolitical Triggers and Market Impact

The week's market turmoil stemmed from multiple geopolitical developments that created uncertainty across global markets. The initial trigger came from US military action in Venezuela and the subsequent arrest of the country's president and first lady, which rattled global markets despite a muted reaction in oil markets.

However, the decisive blow to Indian investor confidence came from reports that the US President was contemplating a 500% tariff on India unless the country ceased importing oil from Russia. This threat created sustained selling pressure throughout the week, leaving Indian indices among the worst performers globally.

In stark contrast, US markets advanced during the same period, with most major American indices reaching all-time highs as investors largely dismissed the escalating geopolitical tensions. This divergence highlighted India's particular vulnerability to the threatened tariff regime.

Technical Analysis and Support Levels

From a technical perspective, the Nifty 50 failed to decisively breach the critical resistance level of 26,300, with the weekly chart forming a bearish engulfing pattern. The recent high of 26,373 now serves as significant near-term resistance.

The percentage of Nifty stocks trading above their 20-day simple moving average currently stands at 42%. Historical analysis suggests short-term market bottoms typically form when this indicator drops below 20%, indicating further downside potential remains likely before a meaningful reversal.

Sector Rotation Dynamics

The weekly Relative Rotation Graph analysis reveals distinct sector positioning across different quadrants. Nifty IT continues to demonstrate strong momentum and relative strength in the leading quadrant, while Nifty Pharma shows improvement with upticks in both momentum and relative strength.

Conversely, Nifty Oil & Gas experienced sharp deterioration in both momentum and relative strength, reflecting the sector's vulnerability to geopolitical tensions. Nifty PSU Banks and Nifty Infrastructure have entered the weakening quadrant with declining momentum and relative strength.