Markets ended the holiday-shortened week with modest gains as Nifty closed at 26,042.30. FII selling continues with ₹22,130 crore outflows in December, while monthly expiry and macro data releases are expected to drive volatility.

Markets concluded the week with modest gains, continuing their ongoing consolidation trend despite mixed global cues and subdued year-end trading volumes. The Nifty closed at 26,042.30, while the Sensex ended at 85,041.00, reflecting a cautious yet steady market tone as investors navigated through thin holiday participation.

Investor sentiment was shaped by a combination of domestic macroeconomic developments and international factors. India successfully finalized a comprehensive Free Trade Agreement with New Zealand, marking significant progress in its Indo-Pacific outreach and export diversification strategy. However, growth across the eight core infrastructure sectors decelerated sharply to 1.8% in November, indicating a short-term slowdown in industrial activity that tempered overall market enthusiasm.

Key Market Drivers for the Week Ahead

Several critical factors are expected to influence market movement as trading resumes, with heightened volatility anticipated due to multiple confluent events.

Monthly Expiry and Technical Outlook

The upcoming week marks the transition into a new calendar year and is likely to witness increased volatility due to the December F&O expiry. From a technical perspective, the Nifty index continues to consolidate near record highs, indicating a healthy pause within the broader uptrend.

Domestic and Global Data Releases

Key domestic data points to monitor include Industrial Production data for November, government budget value figures, external debt statistics, and the final HSBC Manufacturing PMI reading. Globally, markets will closely track US macroeconomic cues, including the FOMC minutes and Federal Reserve balance sheet updates.

Foreign Investment Flows and Currency Trends

Foreign Institutional Investors have resumed their selling streak after a brief pause, with significant outflows continuing to pressure market sentiment. As of December 27, FIIs have offloaded equities worth ₹22,130.00 crore through exchanges, pushing total equity selling for the calendar year to ₹2,31,990.00 crore.

This represents the highest annual net selling by FIIs since their entry into Indian capital markets, highlighting the challenging foreign investment environment.

Currency and Commodity Movements

USD/INR traded marginally lower near 89.75, easing from recent highs as capital outflows moderated and holiday-thinned liquidity curtailed momentum. The 89.50–89.20 zone remains a strong support base, while resistance is positioned in the 90.00–90.50 band. Crude oil prices edged higher in global markets, with Brent crude rising 0.4% to $62.48 per barrel following geopolitical developments including increased US pressure on Venezuelan oil exports.

Market Strategy and Outlook

With liquidity conditions remaining muted and key macro cues awaited, markets are likely to stay range-bound in the near term. Market experts suggest investors may continue adopting a buy-on-dips strategy, focusing on large-cap stocks and select cyclicals offering relative value and stability. Traders are advised to remain stock-specific, trail stop-losses on profitable positions, and avoid aggressive leverage amid expected volatility around expiry and data releases.

Market analysts have identified five stocks showing consistent score improvement, presenting upside potential of up to 36% as investors navigate continued market volatility. The stock selection comes at a time when market participants are preparing for increased focus on fundamental business performance.

Market Outlook and Volatility Expectations

The volatility quotient of the street is expected to remain high for the next few sessions. However, market dynamics are anticipated to shift significantly as the calendar moves into 2026, when business updates will begin to dominate market sentiment and trading patterns.

Earnings Season Impact

Quarterly earnings updates are positioned to become the primary determinant of both overall market direction and individual stock performance. This transition represents a shift from current market conditions toward fundamental analysis-driven trading patterns.

For investors unfamiliar with earnings updates, these quarterly business performance reports provide crucial insights into company financial health, operational efficiency, and growth trajectories. The earnings season typically brings increased focus on revenue growth, profit margins, and forward guidance from corporate management.

Sector-Specific Considerations

Certain sectors, particularly those impacted by US developments, may experience heightened sensitivity during the upcoming period. These sectors could see amplified price movements based on both domestic earnings performance and international market influences.

Investment Strategy Framework

The identified stocks demonstrate consistent score improvement patterns, suggesting strengthening fundamental metrics or technical indicators. The upside potential of up to 36% reflects analyst projections based on current market conditions and expected business performance.

Investors should consider the dual nature of current market conditions: near-term volatility coupled with the approaching earnings-driven market phase. This environment may present both opportunities and risks for equity investments.

Market Transition Timeline

The transition from volatility-driven markets to earnings-focused trading is expected to accelerate as 2026 approaches. This shift typically brings increased attention to company-specific fundamentals rather than broader market sentiment or external factors.