Indian equity markets are likely to open flat to positive on Tuesday, the settlement day for F&O monthly contracts on the NSE. Despite discussions around an India-EU deal, continuous selling by foreign portfolio investors and weaker-than-expected results by India Inc in the December quarter are weighing on investor sentiment.

Market Opening Indicators

Gift Nifty trading at 25,287 indicates a potential gain of about 80 points at the opening for Nifty. However, analysts expect limited movement given the current market conditions and ongoing uncertainties.

Foreign Investment Outflows

Foreign portfolio investors have intensified their selling activities, with total FPI selling in the equity market reaching ₹33,598 crores in January according to NSDL data. This sustained selling pressure stems from concerns over potential rupee depreciation and delayed trade agreements.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments Ltd, noted that FPIs not only continued their selling spree in the week ended January 23 but also increased the intensity of their selling. Market participants believe that the delay in the US-India trade agreement will widen India's trade and current account deficits, further impacting the rupee.

India-EU Trade Deal Prospects

The potential India-EU Free Trade Agreement comes at a crucial time amid global trade fragmentation and rising protectionism. According to Madhavi Arora of Emkay Global Research, the deal could act as an effective counter-cyclical buffer by improving India's export participation in global value chains.

RBI Liquidity Support Measures

The Reserve Bank of India has announced liquidity booster measures to stabilize market conditions. The central bank will purchase government securities worth ₹1,00,000 crore through open market operations, targeting long-term funding requirements of the banking sector.

Market Outlook and Key Factors

Analysts suggest that while markets are in an oversold position due to geopolitical tensions and FII outflows, sentiment could remain weak with the Union Budget announcement approaching. Sachin Neema, fund manager at Garud Investment Managers, highlighted that investors could exercise caution ahead of the monthly F&O expiry, as any pickup in global tensions could fuel extended selling.

According to Ponmudi R, CEO of Enrich Money, Indian equities are likely to see a mild technical pullback from recent lows, supported by positive US market closes and a mildly positive tone across Asian markets. However, persistent FII outflows and continued rupee weakness against the US dollar are expected to cap upside momentum, even as steady domestic institutional investor participation continues to absorb selling pressure at lower levels.

The Indian equity markets have entered a sustained corrective phase that commenced in September 2024, with market experts anticipating continued volatility through 2026. This ongoing correction reflects broader structural challenges facing investors in the current economic environment.

Market Correction Timeline

The correction phase that began in September 2024 has been characterized by persistent downward pressure on equity valuations. Market participants are observing that the current cycle differs from previous corrections due to the underlying valuation concerns that have built up over recent periods.

Valuation Concerns Drive Market Volatility

A critical factor contributing to the amplified market movements is the elevated valuation levels across various segments of the Indian equity market. These high valuations are creating a situation where each market move tends to get magnified, leading to more pronounced corrections compared to historical patterns.

The relationship between valuations and market volatility has become particularly evident during this correction phase, with investors becoming increasingly sensitive to any negative developments or sentiment shifts.

Global Factors and New World Order Impact

The current market environment is being influenced by what analysts describe as emerging dynamics in the global order, where geopolitical considerations are playing an increasingly important role in market movements. These international factors are contributing to the uncertainty that investors are facing in the near term.

Market participants are noting that the interconnected nature of global markets means that domestic corrections are often influenced by broader international developments and policy shifts.

Market Sentiment and Investor Response

The ongoing correction has created a divided sentiment among market participants, with different perspectives emerging on how to navigate the current environment. This division in market opinion is typical during correction phases, as investors reassess their strategies and risk tolerance levels.

The inevitability of corrections in any market cycle is being emphasized by market experts, though the current phase is notable for its duration and the specific factors driving the volatility.