Indian equity markets are set to begin trading on a cautious note, with analysts expecting a flat opening despite identifying potential value buying opportunities at current lower levels. The Gift Nifty trading at 25,600 signals a flattish start for domestic indices amid continuing global market volatility.

Market Sentiment and Global Factors

Ponmudi R, CEO of Enrich Money, explained that Indian equities face headwinds from multiple global factors. Aggressive tariff policies by the US administration are driving trade uncertainties and triggering risk-off sentiment across international markets. These concerns are compounded by heightened geopolitical tensions, persistent foreign investor selling, and continued weakness in the Indian rupee.

"These factors are weighing on investor confidence and likely to cap any meaningful upside in domestic equities even during short-term recoveries," Ponmudi noted. However, he emphasized that steady buying by domestic institutional investors continues to act as a key market stabilizer, effectively absorbing selling pressure and preventing deeper market drawdowns.

Technical Analysis and Key Levels

From a technical perspective, the market appears to be in oversold territory, with analysts anticipating a potential pullback or relief rally. Nilesh Jain, Head of Technical and Derivatives Research at Centrum Broking Ltd., provided detailed technical insights on current market positioning.

Jain observed that the Nifty faced persistent selling pressure throughout recent sessions, opening with gaps down and encountering resistance at higher levels. Despite the pressure, the index managed to close above its 100-day moving average near 25,575, which is providing immediate support.

The overall market structure remains weak, with the MACD indicator showing sell crossovers on both daily and weekly charts. For any meaningful recovery, the index needs to decisively cross above 25,700 to trigger short-covering rallies toward the 25,900 zone. Conversely, a breakdown below 25,575 could lead to further downside toward 25,450 levels.

Budget Expectations and Earnings Outlook

Pre-Union Budget 2026 expectations are creating selective market optimism, with investors anticipating potential announcements around capital expenditure support, tax adjustments, and various fiscal measures. However, this optimism is being tempered by mixed Q3 FY26 earnings results, particularly in the banking and information technology sectors.

The mixed earnings performance is contributing to stock-specific price action rather than broad-based market movements. Additionally, weekly expiry positioning in derivatives markets is adding to intraday volatility, creating challenging trading conditions.

Market Outlook

Analysts suggest that domestic market resilience is partially offsetting global caution, resulting in a range-bound to mildly negative bias for the near term. The market's ability to sustain above key technical levels while absorbing foreign selling pressure through domestic institutional support remains crucial for stability.

Ponmudi concluded that unless fresh positive triggers emerge, the market is likely to maintain its current cautious stance, with trading opportunities primarily arising from stock-specific developments rather than broad market momentum.

CLSA's Laurence Balanco has presented a measured yet optimistic outlook for Indian equities, identifying specific technical levels that could unlock significant upside potential for both benchmark indices and the mid-cap segment. His analysis comes at a time when Indian markets are navigating a consolidation phase while building momentum for potential breakouts.

Nifty Technical Outlook and Key Levels

Balanco describes the current environment for Indian equities as one of consolidation, with the benchmark Nifty trading within a well-defined range. The technical framework he has identified shows clear parameters for potential upside moves.

According to Balanco, a decisive break above 26,300 would open up targets of 27,800 and subsequently 28,800, representing significant upside potential from current levels.

Mid-Cap Opportunity with 30% Upside Potential

Balanco's stronger conviction lies with the mid-cap segment, where he sees a more compelling opportunity developing. The mid-cap space has been consolidating for nearly 24 months, creating what he views as a powerful setup for potential outperformance.

"We've been consolidating there for nearly 24 months, and I think a meaningful break through the 62,000 area for the midcap space gives us upside of over 30%," Balanco stated. He noted that the NSE Midcap Select index has already cleared the upper boundary of its consolidation pattern, suggesting early signs of the anticipated breakout.

Regional Market Dynamics and 2026 Structure

Balanco characterizes 2026 as having a "boom-bust structure" for Asian markets, with distinct phases that could impact capital flows and relative performance. He expects the first half of the year to be dominated by a boom in tech-heavy North Asian markets such as Korea and Taiwan, which could temporarily attract flows away from India.

However, his outlook suggests this leadership will reverse in the second half of the year, as those markets roll over and India emerges from the shadow. This rotation is expected to allow Indian equities, particularly mid-caps, to regain momentum and potentially outperform during the latter part of 2026.

Commodities and Precious Metals Outlook

Balanco's constructive view on Indian markets is reinforced by his outlook on commodities, which he sees as supportive of the broader investment theme. Base metals began breaking out in late 2025, a trend he expects to continue through 2026.

In precious metals, while Balanco expresses caution on silver following its sharp rally, he maintains a bullish stance on gold with an unmet measured target in the $5,100 to $5,200 zone.

Dollar Weakness Supporting Emerging Markets

Underpinning Balanco's positive outlook for emerging markets, including India, is his conviction that the US dollar has entered a major bear market. He pointed to the Dollar Index breaking below the critical 100 level as confirmation of a major top formed between 2022 and 2025.

"The break below 100 suggests that we now have a major dollar top in place," Balanco explained, adding that this opens up a downside target of 89 to 90 on the DXY, representing another 10% decline from current levels. Drawing on historical cycles since the 1970s, he noted that dollar bear markets typically last five to seven years and can result in declines of 40-50%, suggesting the current weakness may only be beginning.