Indian equity markets are set to open on a positive note Monday, buoyed by favorable global sentiment and the commencement of the third quarter earnings season. Gift Nifty trading at 25,840 indicates a potential gain of 180 points for the Nifty at market opening.

Q3 Earnings Season Begins

The market's attention is shifting toward corporate performance and outlook as third quarter results for the period ending December 2025 gain momentum this week. Major IT companies are leading the earnings parade, with TCS and HCLTech scheduled to announce their quarterly results on January 12.

Analyst Expectations and Market Outlook

Emkay Global anticipates a significant improvement in corporate earnings, projecting a turnaround in Q3FY26 that could break the six-quarter consolidation pattern. The brokerage expects strong performance across its coverage universe:

The earnings improvement is attributed to increased festive season demand combined with favorable GST rate-cut policies, particularly benefiting discretionary spending sectors. However, Emkay Global notes that headline numbers may mask underlying disparities, with 42% of companies in their coverage expected to report profit after tax growth below 10%.

Market Correction and Valuation Concerns

The Nifty has experienced a correction of approximately 2.50% from its peak during the first 10 days of January 2026, with current valuations standing at +1 standard deviation. Analysts anticipate continued near-term volatility until a definitive trade agreement between India and the US is finalized.

Derivatives Signal Caution

Despite the positive opening signals, futures and options trading data reveals a more cautious market sentiment. Dhupesh Dhameja, Derivatives Research Analyst at SAMCO Securities, highlights several concerning indicators:

Call writers have aggressively established fresh positions at at-the-money and nearby strike prices, effectively limiting near-term upside potential. The Put-Call Ratio's decline to 0.48 reflects heightened market caution and the prevalence of call writing strategies.

Market Structure and Trading Outlook

While the oversold PCR levels suggest the possibility of minor short-covering rallies, the broader derivatives structure continues to favor sellers over buyers. This technical setup mirrors the cautious sentiment observed in the cash market, indicating that despite positive opening signals, traders remain wary of sustained upward momentum.

The combination of strong Gift Nifty signals and the beginning of earnings season provides short-term optimism, though derivatives positioning suggests investors are approaching the market with measured expectations as Q3 results unfold.

The Nifty has entered a challenging phase, breaking below key technical supports and signaling potential further weakness ahead. After breaching its ascending trendline and closing under critical moving averages, the index faces downside risks that could extend toward the 25,300-25,350 zone.

Technical Breakdown Signals Weakness

The index has broken several crucial technical levels that analysts are closely monitoring:

Somil Mehta, Head of Alternate Research at Mirae Asset Sharekhan, notes that momentum indicators have flashed a negative crossover, confirming the short-term weakness. The breach of the 50-day EMA marks the first such occurrence in over three months, representing a significant bearish shift in trend.

Market Structure Deteriorates

Rupak De, Senior Technical Analyst at LKP Securities, highlights that the index has slipped below its rising trendline, indicating rising bearish sentiment across the market. The India VIX has spiked sharply, moving above its 50-day EMA at 10.6, reflecting heightened investor anxiety and increased volatility expectations.

Dhupesh Dhameja, Research Analyst at Samco Securities, points out that the market structure has weakened significantly. The index has closed below the previous day's high for five straight sessions, with every intraday recovery facing swift selling pressure.

Critical Support and Resistance Zones

Analysts have identified key levels that will determine the index's near-term direction:

The 25,600 level represents a crucial make-or-break zone where the 20-week EMA and 100-day EMA converge. A sustained breach of this level could accelerate the decline toward 25,350.

Trading Strategies and Recommendations

Given the current technical setup, analysts recommend adopting a cautious approach:

Nifty Strategy:

• Sell on bounce toward 26,000 with targets of 25,800 and 25,300
• Stop loss at 26,200
• Avoid fresh long positions until DEMA crossover reversal

Bank Nifty Approach:

• Dark cloud cover pattern formed on weekly chart
• Sell below 59,150 targeting 58,800
• Stop loss above 59,300

Options Strategy: For options traders, a bear call spread strategy is recommended by selling the 25,500 CE and buying the 25,750 CE of the January 20 expiry to benefit from overhead resistance with limited risk.

Individual Stock Recommendations

Analysts have identified specific trading opportunities in individual stocks:

Bearish Picks:

• LIC: Sell at ₹830, target ₹750, stop loss ₹860
• CAMS: Sell at ₹727, target ₹650, stop loss ₹760
• Hindustan Zinc: Sell below ₹606, target ₹585, stop loss ₹615

Bullish Opportunities:

• Emcure Pharmaceuticals: Buy at ₹1,541, target ₹1,660, stop loss ₹1,494
• The Ramco Cements: Buy at ₹1,093.80, target ₹1,200, stop loss ₹1,035
• Endurance Technologies: Buy at ₹2,622, target ₹2,810, stop loss ₹2,520

Market Outlook

The consensus among technical analysts suggests that the Nifty remains in a bearish phase with limited upside potential until key resistance levels are reclaimed. The persistent selling on intraday recoveries and elevated volatility indicate that market sentiment is unlikely to stabilize unless the index decisively moves back above the 25,900-26,100 resistance band. Until then, a sell-on-rise strategy appears to be the preferred approach for navigating the current market environment.