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.

Market veterans remain bullish on India's investment prospects despite rising global geopolitical risks under the Trump presidency, emphasizing that the country's structural growth story remains intact amid near-term volatility. The optimistic outlook emerged during discussions at the CFA Society India Investment Conference held in Mumbai on January 9.

Strong Macro Fundamentals Drive Confidence

Carenlian Asset Managers' Vikas Khemani expressed confidence that 2026 will outperform 2025, characterizing the past year as a consolidation phase rather than a fundamental breakdown. He drew parallels with previous periods of uncertainty, noting that pessimism typically peaks just before market conditions stabilize.

"In the last 12 months, while all these things were happening, we had a great fiscal stimulus, a great monetary stimulus, liquidity infusion, interest-rate actions and growth-boosting policies," Khemani explained. He highlighted that both government and private capex have shown strong performance, with all growth pillars remaining firmly in place.

Valuation Challenges Persist Despite Strong Returns

HDFC AMC's Chirag Setalvad acknowledged that while long-term returns remain robust, current valuations continue to present challenges for investors. He provided specific performance metrics demonstrating the market's strength over extended periods.

"We've just had a one-year or one-and-a-half-year consolidation," Setalvad noted, emphasizing that corrections are necessary to normalize premium valuations. He observed a constructive shift in market sentiment, with retail investors becoming more cautious and IPO activity slowing down.

Global Environment Remains Challenging

Regarding global growth prospects, Setalvad expressed caution about the broader international landscape. He noted that the United States is unlikely to sustain 2.50-2.70% growth rates, while China faces structural challenges and Europe remains in economic doldrums.

WhiteOak Capital's Prashant Khemka maintained stable expectations for Indian equities, stating that fair coin flip expectations of 10.00-12.00% returns remain unchanged for 2026. He defended India's valuation premium, arguing that the country deserves higher multiples due to its democratic framework and stronger property rights.

India's Structural Advantages Justify Premium

Khemka provided important context regarding India's valuation relative to global markets, particularly the United States. "India today is trading at a higher discount to the US than it has over the last 25 years, barring global crises," he explained, countering concerns about excessive valuations.

Regarding Trump's broader impact on global markets, Khemka characterized the shift as ideological rather than temporary, suggesting that Trump-like policies have become more entrenched in global political discourse.

Market Volatility Viewed as Opportunity

Despite acknowledging the increased difficulty in forecasting markets under Trump's leadership, panelists emphasized that volatility should be welcomed rather than feared. Setalvad concluded that market corrections create wealth-building opportunities for long-term investors.

The experts' consensus reflects confidence in India's fundamental economic strength, even as global uncertainties continue to create short-term market challenges. Their outlook suggests that India's structural advantages and policy support will continue driving long-term growth despite external headwinds.