Indian Equity Markets registered their third consecutive session of marginal declines on Wednesday, as global geopolitical concerns and persistent foreign institutional investor outflows continued to weigh on sentiment. The markets are expected to remain in a consolidation phase with profit booking emerging at higher levels, while sector-specific movements are being driven by Q3 business update announcements.

Technical Outlook and Market Range

Technical analysts suggest the near-term trend is likely to remain sluggish, with the Nifty expected to trade within a defined range. The following technical levels are being closely watched:

Any decisive fall below 26,000 may trigger further weakness in the index. Conversely, a decisive move above 26,300 would be required for a directional upmove in the Nifty.

Market Volatility and F&O Activity

The India VIX, which measures market fear and volatility, fell 0.7% to settle at 9.95 levels, indicating a slight reduction in market uncertainty. In the F&O segment, two securities are currently in the ban period for having crossed 95% of the market-wide position limit:

• SAIL
• Sammaan Capital

Institutional Investment Flows

Wednesday witnessed contrasting flows from foreign and domestic institutional investors, highlighting the divergent sentiment between the two investor categories:

The persistent FII outflows continue to be a key concern for market participants, though DII support has helped cushion the impact on overall market sentiment.

Currency Market Performance

The Indian rupee showed strength against the US dollar, rising 31 paise to close at 89.87. This appreciation was attributed to possible intervention by the Reserve Bank of India and a decline in global crude oil prices, which typically benefits the rupee given India's significant oil import dependency.

Market Outlook

Analysts expect the markets to continue facing headwinds from global geopolitical concerns while remaining supported by domestic institutional buying. The focus is likely to remain on Q3 business updates and earnings announcements, which could drive sector-specific movements in the coming sessions. The consolidation phase is expected to persist until there is greater clarity on global developments and foreign investor sentiment improves.

Indian equity markets continue to experience a challenging environment, repeatedly touching fresh all-time highs but struggling to sustain momentum amid expiry-related pressures and persistent selling. The Nifty has demonstrated this pattern for several weeks, creating uncertainty about the durability of current market strength.

Strong Domestic Support Provides Market Floor

According to Abhay Agarwal from Piper Serica, the market's recent behavior reflects a clear dynamic between domestic and foreign investor sentiment. The analysis reveals strong domestic support at key levels.

Agarwal noted that domestic flows remain adequate to prevent significant declines, stating that markets have "very strong support at the 26,000 level, where domestic flows are adequate to keep it at that level and not let it fall."

Foreign Investment Concerns Limit Upside Potential

The absence of meaningful foreign portfolio investor participation continues to constrain market advances. Agarwal highlighted that sustained upside remains difficult without overseas participation, emphasizing that the $18.00 billion FPI outflow represents a significant headwind.

Foreign investors are expected to remain cautious until trade deal clarity emerges. The uncertainty extends beyond announcements to actual agreement implementation, with concerns that delays could lead to additional penal tariffs on Indian companies or exporters.

IT Sector Earnings Outlook Remains Subdued

With TCS scheduled to begin the earnings season on January 12, expectations for the IT sector remain notably muted. Agarwal characterized the sector's challenges as structural rather than cyclical.

The analysis suggests that large software services companies face internal issues requiring resolution, independent of global environment changes. Management guidance is expected to remain conservative, with companies likely projecting growth in the 2.00% to 5.00% range in constant currency terms.

Retail Sector Shows Mixed Signals

Recent quarterly updates have raised concerns across the retail sector, with weakness appearing even in value retail segments. Same-store sales growth has decelerated across multiple players, though Agarwal cautioned against drawing broad conclusions from single-quarter performance.

Value retail in non-tier I cities continues demonstrating resilience despite growing e-commerce competition. The analysis suggests that inventory management and accounting practices can significantly distort short-term performance metrics, requiring additional quarters of data for accurate trend assessment.

Market Outlook and Participation Trends

The broader market narrative reflects ongoing consolidation, with domestic liquidity providing support while global uncertainty limits upside potential. Agarwal anticipates that rally participation will broaden to include smaller and midcap stocks, which experienced limited participation in the previous year.

The current environment suggests markets will continue operating within established ranges until foreign investor sentiment improves and trade deal clarity emerges. Domestic support mechanisms remain robust, providing a foundation for market stability even amid challenging external conditions.