Indian equity markets are positioned for a challenging Tuesday session as negative global trends and monthly F&O expiry create a volatile trading environment. Following Monday's decline, where both benchmark indices extended their losing streak, market participants brace for continued pressure from multiple headwinds.

Monday's Market Performance and Current Setup

The trading session witnessed sustained selling pressure as muted year-end trading volumes and foreign fund outflows dampened investor sentiment. Both benchmark indices closed in negative territory despite opening with early gains, reflecting cautious market positioning.

Tuesday's Market Outlook and Key Factors

Ponmudi R, CEO of Enrich Money, highlighted that Indian equity markets remain in a cautious consolidation-to-mildly bearish phase. The combination of ongoing profit booking, expiry-related positioning, and thin year-end liquidity continues to weigh on sentiment. Intraday volatility is expected to remain elevated, particularly during the latter half of Tuesday's session, amid monthly F&O expiry and rollover activity.

Derivatives Analysis and Technical Levels

Derivatives data reflects a cautious market stance with significant positioning changes. Dhupesh Dhameja from SAMCO Securities noted that call writers have added fresh positions at at-the-money strikes, with nearly 2.30 crore call contracts accumulated at the 26,000 strike, establishing firm overhead resistance. Put writers have reduced exposure and rolled positions lower, with 1.13 crore put contracts added at 25,900 creating strong support.

Economic Data Bright Spot

Despite market weakness, India's industrial sector demonstrated strong resilience with the Index of Industrial Production rising 6.70% year-on-year in November, the highest reading in 25 months. The growth was driven by an 8.00% surge in manufacturing and 5.40% rebound in mining. However, analysts expect markets to discount this positive data amid prevailing negative sentiment.

The Nifty closed 0.38% lower at 25,942.10, extending its downward trend after failing to sustain above 26,200 levels. The index has been trading within the 25,700-26,200 range for nearly two months, with analysts identifying crucial support levels that could determine near-term direction.

Key Support and Resistance Levels

Analysts from Bajaj Broking Research identify immediate support for the Nifty in the 25,700-25,800 range, which coincides with the current month's lows, the 50-day EMA, and a key retracement level of the prior up-move. Holding above this support band would keep the near-term outlook neutral to mildly positive.

Osho Krishnan of Angel One highlights that the 26,100-26,150 zone stands out as a key hurdle on the upside. Beyond this level, the Nifty could regain momentum to re-test its lifetime highs in the coming sessions.

Market Sentiment and Trading Strategy

The market breadth indicates a lack of bullish momentum, with sellers dominating the landscape. Krishnan notes that as the market progresses, it would be beneficial to maintain light positions on both sides until decisive momentum is restored. He suggests focusing on select thematic players could provide opportunities to generate higher alpha in the current market landscape.

The sustained selling pressure at higher levels and lack of follow-through buying indicates short-term exhaustion and weakening momentum. With the index trading below the psychological 26,000 mark, a cautious trading strategy remains advisable with emphasis on capital protection and strict stop-loss discipline.

Banking Sector Analysis

The Bank Nifty formed a bearish candlestick with a lower high and lower low, reflecting continued profit booking for the fourth consecutive session. The index finds support at 58,800-58,500 levels, according to Krishnan.

Bajaj Broking Research expects the index to remain in a consolidation phase and build a base within the 58,500-60,100 range over the coming weeks. A decisive move above the last two weeks' high of 59,500 could pave the way for fresh upside toward the recent all-time high near 60,100.

Market Performance and Top Movers

The BSE Sensex closed 345.91 points or 0.41% lower at 84,695.54, reflecting broad-based weakness across the market.

The mixed performance among individual stocks suggests selective buying interest in certain sectors while broader market sentiment remains cautious. Traders are advised to monitor key technical levels closely and align their strategies accordingly as the market seeks direction amid ongoing consolidation.