Indian equity markets demonstrated resilience in early 2025 trading, with the Sensex rising over 200 points on Friday as investors positioned ahead of the quarterly earnings season. The BSE Sensex gained 0.25% to trade at 85,399, while the NSE Nifty50 added 0.23% to trade above the 26,150 mark on the second trading day of the year.

Market Performance Shows Sectoral Divergence

The latest trading session revealed clear sectoral leadership, with auto stocks emerging as top performers. The sector index climbed 0.8%, driven by impressive December sales data that boosted investor confidence.

However, the session also highlighted significant pressure points, with ITC sliding 5% and extending its steep selloff after a 10% drop in the previous session. The decline stemmed from multiple brokerage downgrades following concerns over earnings pressure from the government's cigarette tax increase.

Broader Market Sentiment Remains Constructive

Despite individual stock volatility, broader market indices showed positive momentum. Small-cap stocks advanced 0.20%, while mid-cap shares gained 0.40%, indicating healthy participation across market capitalizations. The fast-moving consumer goods index fell 1.40%, weighed down primarily by ITC's decline.

Auto Sector Drives Optimism on Strong Sales Data

The impressive 25.80% year-over-year increase in passenger vehicle sales during December has reinforced positive sentiment around the automotive sector. Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, emphasized the broader economic implications: "This data confirms the growth momentum in the economy. It has to be watched whether this growth sustains, albeit at a slower pace, going forward."

Technical Outlook and Historical Context

Despite the positive Friday session, markets continue to navigate historical January weakness patterns. Over the past decade, the Nifty has recorded negative January performance eight times compared to just two positive closes, while the Sensex has declined seven times against three positive months.

Technical analysis suggests key levels remain in focus, with resistance at 26,250 and potential upside targets at 26,500. The 50-day exponential moving average at 25,850 continues to provide crucial support for the Nifty.

Investment Opportunities Emerge in Lagging Sectors

Vijayakumar highlighted potential opportunities in the consumer durables segment, which lagged significantly in the previous year. "The beneficial impact of the interest rate cuts and GST cuts are yet to reflect in the demand for consumer durables. In the short-term, this is one segment that has good prospects," he noted.

The combination of earnings season anticipation, strong auto sector performance, and selective opportunities in underperforming segments suggests markets are positioning for potential momentum ahead of the Union Budget scheduled for early February.

Indian markets kicked off 2026 with a subdued performance on Thursday, as benchmark indices closed nearly flat amid thin trading volumes. The muted start reflected cautious investor sentiment and limited global market participation, with most overseas markets remaining closed for the New Year holiday.

Market Performance Overview

The Indian Stock Market displayed mixed signals on the first trading day of 2026, with contrasting performance between the two key benchmark indices:

Both indices had closed approximately 0.50% lower in December, making Thursday's performance a modest improvement. Trading activity remained subdued globally, contributing to the flattish market tone despite some stock-specific action.

Sectoral Performance and Key Movers

Sectoral performance showed clear divergence, with automotive stocks leading gains while FMCG faced significant pressure:

The FMCG sector's decline was primarily driven by tobacco-related stocks following the finance ministry's announcement of February 1 as the effective date for additional excise duty on tobacco products. ITC tumbled 9.70%, while Godfrey Phillips India plunged 17.00%.

Broader Market and Investment Flows

Broader market indices showed mixed performance with the Nifty Mid-cap 150 advancing 0.40%, while the Small-cap 250 slipped 0.10%. Market breadth remained narrow on BSE, with more decliners than gainers.

Foreign and domestic investment flows continued their contrasting trends:

Foreign portfolio investors had sold ₹30,391.00 crore worth of equities in December, continuing the trend of persistent outflows.

Policy Developments and Currency Impact

The government's implementation of significant taxation framework changes continued to influence market sentiment. The major sin-tax recalibration, marking one of the most substantial changes since GST rollout in 2017, particularly affected tobacco-related stocks.

The rupee began 2026 on a weaker note, declining 11 paise to 89.99 against the US dollar in early trade, reflecting ongoing challenges from persistent foreign fund outflows.

Market Outlook

Analysts noted that the market has already undergone both price-wise and time-wise corrections over the past two months. With third-quarter results beginning next week, market participants expect continued stock-specific moves and narrow participation. Banking, NBFCs, and auto stocks near one-year highs are likely to lead, while beaten-down sectors such as IT, pharma, and power could see recovery.