Indian equity markets endured their worst weekly performance in over three months, with broader market indices facing significant pressure amid rising geopolitical tensions, persistent foreign institutional investor (FII) selling, and concerns over potential US tariffs. The small-cap segment bore the brunt of the selloff, declining nearly 4% and significantly underperforming benchmark indices.

Market Performance Overview

The benchmark indices posted substantial declines during the week, reflecting widespread investor caution and risk-off sentiment.

The small-cap index's 4% decline highlighted the vulnerability of smaller companies to market volatility, with broader market indices remaining under sustained pressure throughout the week.

Sectoral Performance Analysis

Sectoral performance revealed a mixed picture, with energy-related sectors facing the steepest declines while defensive sectors showed resilience.

The Nifty Defence index emerged as a notable outperformer with a 1.3% gain, while the Consumer Durables index rose 1% on hopes of demand revival.

Institutional Investment Flows

Institutional investment patterns continued to reflect the divergent approaches of foreign and domestic investors.

Foreign Institutional Investors maintained their selling pressure, offloading equities worth ₹9,209.90 crore during the week. In contrast, Domestic Institutional Investors provided crucial market support by purchasing equities worth ₹17,594.58 crore.

Small-Cap Sector Impact

The BSE Small-cap index's nearly 4% decline was accompanied by severe selling pressure across individual stocks. Several small-cap companies experienced double-digit declines, with shares of multiple companies including Systematix Corporate Services, Balu Forge Industries, Worth Investment & Trading, VTM, Kiri Industries, and others tumbling between 15% and 23% during the week.

Technical Outlook

Market analysts suggest the Nifty's technical structure indicates continued weakness, with the index moving lower from the 50 EMA. The formation of a long bear candle on both daily and weekly charts signals potential further downside. Key support levels are identified around 25,700, with a break below this level potentially opening declines toward 25,400-25,500. Immediate resistance is placed at 25,850-25,900.

Market Drivers and Outlook

The week's performance was influenced by multiple global and domestic factors, including rising geopolitical tensions, concerns over potential US tariffs, and continued FII outflows. Despite these challenges, strong domestic fundamentals, including healthy GST collections and robust bank credit growth, provided some underlying support to market sentiment. Looking ahead, market direction will likely be shaped by clarity on global trade dynamics and upcoming quarterly earnings results.

Market analysts have identified five stocks showing consistent score improvement with upside potential of up to 35%, even as concerns emerge over potential delays in India-US trade negotiations. The market sentiment reflects growing expectations that a trade deal between the two nations may face delays beyond March.

Trade Deal Delay Concerns

Recent market sessions suggest that investors are beginning to price in the possibility of extended negotiations between India and the US. This development has created uncertainty across various sectors, with some industries facing more direct exposure than others.

The delay in trade negotiations is expected to have varying degrees of impact across different segments of the economy, with export-oriented sectors likely to face the most immediate challenges.

Sector-Specific Impact Assessment

Several key sectors are positioned to experience direct effects from any potential trade deal delays:

• Textiles industry - Expected to face challenges in Q4 financial results
• Gems and jewellery sector - Likely to see impact on quarterly performance
• Food exporters - Specific categories of food exports may be affected

These sectors' Q4 numbers are anticipated to reflect the uncertainty surrounding trade negotiations, potentially creating headwinds for companies operating in these segments.

Broader Market Implications

Beyond the direct sectoral impact, analysts suggest that the absence of a trade agreement could create broader market effects. The potential for currency-related implications adds another layer of complexity to the overall market outlook.

The hangover effect from delayed trade negotiations may extend beyond immediate sectoral concerns, potentially influencing investor sentiment and market dynamics in the coming quarters.

Investment Strategy Considerations

Despite the trade-related uncertainties, the identification of stocks with consistent score improvement suggests that selective opportunities remain available in the current market environment. The upside potential of up to 35% indicates that certain stocks continue to demonstrate strong fundamentals and growth prospects.

Investors are advised to consider both the broader trade-related headwinds and individual stock performance metrics when making investment decisions in the current market climate.