Indian stock market benchmark indices Sensex and Nifty 50 are expected to stage a rebound in the holiday-shortened week, supported by hopes of relief from US tariff measures and expectations around progress on the India-European Union trade agreement. Markets remained closed on January 26, 2026, for Republic Day, with trading resuming Tuesday on BSE and NSE.

Both indices witnessed sharp sell-offs on Friday, weighed down by persistent foreign institutional investor outflows, heightened geopolitical uncertainties, caution ahead of Union Budget 2026, and mixed corporate earnings for the December quarter. However, several key weekend developments may improve market sentiment.

US Tariff Relief Provides Hope

The Indian equity market could find support after US Treasury Secretary Scott Bessent signaled the possibility of rolling back additional 25% tariffs on India. Bessent indicated "there could be a path" to removing the levies, noting that India's purchases of Russian oil have declined sharply following tariff measures imposed by the Donald Trump administration.

India-EU Trade Deal Expectations Build

European leaders have arrived in India for the 16th India-EU Summit, where discussions will center on advancing a Free Trade Agreement aimed at strengthening bilateral trade ties. Progress on the India-EU trade deal could provide a counter-cyclical buffer for the Indian economy by enhancing export participation in global value chains, expanding market access, and supporting supply-chain diversification.

Madhavi Arora, Lead Economist at Emkay Global Financial Services Ltd, estimates that bilateral alignment could lift India's exports to the EU by $50 billion by 2031, led by medium-tech manufacturing. "Improved import efficiency and higher FDIs would further support productivity gains and tech transfers, while greater regulatory certainty could aid IT services exports, where the EU already accounts for approximately one-third of demand," Arora said.

Key beneficiary stocks from the likely India-EU trade deal include:

Pharmaceutical Sector:

• Dr Reddy's Laboratories
• Lupin
• Sun Pharmaceutical Industries

Chemicals Sector:

• SRF
• Navin Fluorine
• Gujarat Fluorochemicals
• Aarti Industries

RBI Announces Major Liquidity Injection

The Reserve Bank of India announced on Friday it will inject over ₹2 lakh crore of liquidity into the system through multiple measures:

The central bank will undertake government bond purchases under open market operations, including ₹50,000 crore each on February 5 and February 12.

Technical Outlook Remains Challenging

Nifty 50 plunged 2.51% last week amid heavy selling pressure across all sectors, weakening the overall market structure. The benchmark index decisively slipped below its key 200-day EMA, signaling a negative trend. The 21-day EMA crossing below the 55-day EMA confirms bearish momentum.

Dr. Ravi Singh, Chief Research Officer from Master Capital Services Ltd, noted that immediate support for Nifty 50 is placed near 24,850, with a break below potentially dragging the index toward 24,600. On the upside, resistance stands at 25,250, while sustained strength above this could lead to recovery toward 25,500.

Indian benchmark indices experienced significant selling pressure during the week, with broad-based declines affecting all major market segments. The downturn was attributed to a combination of global and domestic headwinds that weighed heavily on investor sentiment.

Market Performance Overview

The week's trading session reflected widespread market weakness across all segments:

The sell-off was broad-based, with all sectoral indices finishing lower and midcap and smallcap stocks seeing notable wealth erosion.

Key Factors Shaping Market Direction

Q3 Earnings and Corporate Commentary

Underwhelming and cautious Q3 earnings commentary from several corporates emerged as a key trigger, weighing heavily on market confidence. With results from companies such as Axis Bank and ACC due next, investors will closely watch how the market reacts to further earnings cues.

Union Budget Expectations

As markets head into Budget week, volatility is expected to remain elevated, with the possibility of sharp swings on either side for the index. Market participants are positioning themselves according to expectations ahead of the Finance Minister's speech on February 1.

Global Risk Factors

Several international developments continue to create uncertainty:

• US Trade Concerns: Renewed trade concerns between the U.S. and major economies, particularly Europe, have added to market uncertainty
• Geopolitical Tensions: Escalating tensions in the Middle East, especially recent developments involving the U.S. and Iran, have kept global markets on edge
• Crude Oil Supply: Rising fears over potential disruptions in crude oil supply routes and increased military posturing have heightened volatility across asset classes

Technical Analysis and Currency Movement

Market Levels and Support

Analysts suggest that traders remain highly selective and clearly define exit strategies. According to Rajesh Bhosale, Equity Technical Analyst at Angel One, the sharp bounce from the 24,900 mark now acts as immediate support for the monthly expiry.

Currency Outlook

The rupee continues to trade weakly as persistent FII selling in secondary markets weighs on the currency. While domestic macro fundamentals remain relatively stable, elevated global uncertainties are keeping sentiment cautious. Jateen Trivedi, VP Research Analyst at LKP Securities, expects the rupee to remain under pressure with a weak trading range of 91.35-92.25.

Investment Flows

From a flows perspective, foreign and domestic institutional activity showed contrasting patterns:

DII inflows provided meaningful support, helping cushion the broader downside according to data from Master Capital Services.