Indian equity markets are positioned for a mildly positive yet range-bound opening, with Gift Nifty at 26,390 signaling a positive start of approximately 50 points. Market participants are preparing for a session dominated by weekly options expiry flows and growing anticipation around the Q3 earnings season.

Market Sentiment and Key Drivers

According to Ponmudi R, CEO of Enrich Money, domestic equity markets are set for cautious optimism with underlying support from stable macro fundamentals. "Market attention is expected to centre on weekly options expiry-related flows and evolving expectations around the upcoming Q3 earnings season," he noted. The broader sentiment remains guarded amid recent volatility driven by geopolitical developments and tariff-related concerns.

Foreign Investment Concerns and Policy Watch

Analysts have highlighted selling by foreign portfolio investors as a significant concern for market stability. The focus has intensified on US President Donald Trump's policy moves, particularly regarding tariffs, which market participants are monitoring closely for potential impact on global trade dynamics.

Government Spending and Sectoral Performance

Government capital expenditure demonstrates healthy momentum in 8MFY26, with defense spending leading the charge. Railways sector is expected to witness increased activity over the coming quarters, supporting the overall capex narrative.

Technical Analysis and Market Outlook

Siddhartha Khemka, Head of Research at Motilal Oswal Financial Services, expects markets to maintain firmness with positive bias. This optimism stems from better-than-expected Q3 business updates and expectations of capex pickup ahead of the Union Budget, though volatility may persist due to global geopolitical developments.

Technical indicators reveal elevated market stress, with India VIX rising 6.06% to 10.02 during the session. Aakash Shah, Technical Research Analyst at Choice Broking, emphasizes that a sustained close above the 26,300 zone would be crucial for reviving bullish momentum in the Nifty.

Global Market Context

Asian stocks displayed mixed performance in early trading, despite a strong overnight close in US markets. This divergence reflects the cautious approach adopted by regional investors amid ongoing global uncertainties and policy developments.

The Nifty achieved a fresh milestone by touching a record high of 26,373.20 during Monday's session but failed to sustain the momentum, closing lower at 26,250.30, down 78.25 points or 0.30%. The BSE Sensex also hit an all-time high of 85,883.50 before settling at 85,439.60, declining 322.40 points or 0.40%.

Market Performance Amid Global Rally

Despite upbeat cues from Asian markets, Indian indices struggled to hold gains. Asian markets rallied strongly, with Taiwan surging 2.60%, South Korea advancing significantly, and Japan climbing 3.00%. China added 1.40% while Hong Kong ended marginally higher. However, Indian markets witnessed profit-taking at higher levels after the record-breaking session.

Sectoral Performance and Key Movers

The Nifty IT index emerged as the biggest sector loser, declining 1.40%. HCL Technologies and Infosys dropped over 2.00% each. HDFC Bank's 2.30% decline contributed significantly to the index fall, continuing concerns despite strong business updates. Broader market performance remained mixed, with 1,672 stocks advancing and 2,603 declining out of 4,471 traded on the BSE.

Strong Q3 Business Updates Across Sectors

Despite market volatility, most third-quarter business updates demonstrated robust fundamentals:

Technical Outlook and Key Levels

Analysts maintain a bullish outlook despite Monday's decline. Nilesh Jain of Centrum Broking expects the Nifty to rise to 26,800 levels, emphasizing that the undertone remains positive. The Volatility Index (VIX) climbed 6.10% to 10.02, up from an all-time low of 9.00, making the pullback anticipated.

Market Flows and Geopolitical Factors

Foreign Portfolio Investors sold shares worth ₹36.30 crores on Monday, while domestic institutions bought ₹1,764.07 crores. FPIs have offloaded ₹3,077.10 crores in January so far. Gaurav Sharma of Globe Capital noted that markets did not react significantly to US-Venezuela geopolitical concerns as crude oil prices remained stable, with Brent crude futures rising just 0.40% to $61.10 per barrel.