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.

The Indian equity markets maintained their cautious momentum in the second trading session of 2025, with the NSE Nifty 50 extending its winning streak while consolidating above critical support levels. Despite range-bound movement, the index demonstrated resilience by sustaining above the 26,100 zone, supported by strong sectoral rotation.

Market Performance and Key Levels

The trading session concluded with the Nifty managing modest gains while the Sensex faced minor pressure:

According to Nandish Shah, Deputy Vice President at HDFC Securities, turnover on the NSE's cash segment dipped 21%, reflecting holiday-thinned participation that characterized the consolidative trading environment.

Technical Outlook and Breakout Targets

Technical analysts have identified crucial resistance and support zones that will determine the market's near-term direction:

Shrikant Chouhan emphasized that a breakout above the 26,200-26,234 zone could push the market toward 26,300-26,350 levels. Aakash Shah of Choice Broking places immediate resistance in the 26,250-26,300 range, while warning that sentiment could turn vulnerable if the index slips below 25,950.

Sectoral Performance and Market Drivers

Sectoral rotation dominated the trading session with distinct winners and losers:

The Auto sector emerged as the star performer, rallying 1.00% on positive expectations, while FMCG heavyweights faced significant pressure following government policy changes on tobacco taxation.

Bank Nifty Analysis

The Bank Nifty traded in a consolidative manner following recent outperformance, with banking heavyweights showing mixed activity:

A decisive breakout above the 59,900-60,000 range is essential to open doors for further upside toward all-time highs.

Market Breadth and Trading Activity

Market breadth remained positive for the second consecutive session, with an advance-decline ratio of 1.14 on the BSE, suggesting continued stock-specific opportunities in early January trading. The balanced participation indicates that while overall indices remain range-bound, individual stock selection continues to offer potential returns.

Analysts expect the current consolidation phase to continue until the market decisively breaks above the 26,200-26,234 resistance zone, with sectoral rotation likely to remain the primary driver of returns in the near term.