Indian equity markets witnessed one of their steepest weekly declines in recent months, with the Nifty falling 2.45% to 25,683.30 and the Sensex dropping 2.55% to 83,576.24. The sharp sell-off was driven by weak global cues, growing uncertainty over India-US trade relations, and sustained foreign institutional investor (FII) selling pressure.

Technical Analysis Points to Deeper Correction

Sudeep Shah, Vice President and Head of Technical and Derivatives Research at SBI Securities, provided insights into the market's technical outlook following the sharp decline. The benchmark Nifty scaled a fresh all-time high on Monday before reversing sharply, ending the week with its steepest correction since September 2025.

The technical indicators present a concerning picture for the near term:

Key Support and Resistance Levels

Shah identified critical levels that traders should monitor closely. The immediate support zone lies between 25,500 to 25,450, with a sustainable breach below 25,450 potentially opening doors for a sharper decline towards 25,200. On the upside, recovery attempts are likely to face stiff resistance in the 25,900 to 25,950 zone.

The weakness extends beyond the frontline index, with the Nifty Midcap 100 slipping below its 20-day and 50-day exponential moving averages, while the Nifty Smallcap 100 trades below all key moving averages.

Banking Sector Shows Relative Outperformance

Despite the overall market weakness, the Bank Nifty managed to outperform with a decline of 1.5% compared to broader market corrections. However, technical signals remain cautionary:

Market Catalysts and Sector Outlook

Several factors could potentially drive market recovery beyond the 26,300 resistance level. These include improving corporate earnings in Q3, accommodative monetary policy from the RBI, renewed foreign institutional inflows, easing geopolitical tensions, and market-friendly Union Budget announcements.

Regarding sector performance, Shah noted that both IT and banking sectors appear well-positioned for January outperformance. The IT sector benefits from seasonal trends, having ended January in positive territory 14 times over the past 21 years, with an average gain of 6.23% in the month leading up to the Budget.

FII Selling Pressure Continues

Foreign institutional investors have maintained their selling stance, offloading over ₹3,000 crores in a single day during the week. This extends a broader trend of FII withdrawals totaling nearly ₹1.84 lakh crores over the past six months, reflecting subdued conviction amid trade uncertainties, a stronger US dollar, and rupee weakness.

Looking ahead, sectors showing relative strength include defence, PSU banks, IT, automobiles, pharmaceuticals, healthcare, and financial services, which could potentially outperform if follow-through buying emerges in the second half of January.

Indian equity markets witnessed a sharp correction this week, with benchmark indices giving up earlier gains after hitting fresh highs. The decline was driven by weak global cues, growing uncertainty around trade policies, and sustained foreign institutional investor selling pressure.

Market Performance Overview

The weekly performance highlighted the severity of the correction across major indices:

The decline marked one of the steepest weekly corrections in recent months, with broader markets underperforming and highlighting a clear risk-off sentiment among investors.

Technical Analysis and Key Levels

Sudeep Shah, Vice President and Head of Technical and Derivatives Research at SBI Securities, provided detailed technical insights on the market's current structure. The Nifty's decline carries significant technical implications, having confirmed a neckline breakdown of an Adam and Adam Double Top pattern.

The index has decisively slipped below its 20-day and 50-day exponential moving averages (EMA), with the 50-day EMA support that held firm on four occasions since October finally giving way. Currently hovering near its 100-day EMA, momentum indicators have turned visibly weak.

Critical Support and Resistance Levels

The daily RSI has slipped below the 40 mark for the first time since September and continues trending lower, a combination that rarely goes unnoticed by market participants.

Banking Sector Weakness

Bank Nifty managed to outperform frontline indices despite closing nearly 1.50% lower. However, the weekly chart shows formation of a Dark Cloud Cover candlestick pattern, indicating a potential shift from bullish to bearish sentiment.

The banking index has slipped below its 20-day EMA, with momentum indicators turning soft. The zone of 58,700 to 58,600 will act as critical support, with sustained moves below 58,600 potentially accelerating decline towards 58,000 and 57,500.

Individual Stock Spotlight: Trent's Sharp Decline

Trent experienced a massive decline of approximately 8% during the week on concerns over rising competition and growth deceleration. The company reported revenue growth of 17%, significantly below management's earlier guidance of 25%. Technical analysis shows the stock has been in a lower high, lower low formation since hitting 8,345 on October 14, dropping nearly 52% from those levels.

Sector Outlook and Strategy

Shah recommends staying cash-rich for the next couple of trading sessions given the current chart structure of both frontline and broader market indices. However, he identifies several sectors showing relative strength that could outperform if follow-through buying emerges:

• Defence
• PSU banks
• Information Technology
• Automobiles
• Pharmaceuticals and healthcare
• Financial services

For the IT sector specifically, seasonal trends support potential outperformance. Over the past 21 years, the IT index has ended January in positive territory 14 times, with an average gain of 6.23% in the month leading up to the Union Budget.

Market Catalysts and Future Triggers

Several factors could potentially help markets break above the 26,300 resistance level. These include improving corporate earnings in Q3, accommodative monetary policy from the RBI, renewed foreign institutional inflows, easing geopolitical tensions, and market-friendly announcements in the upcoming Union Budget.

Foreign institutional investors have turned net sellers again, with withdrawals of nearly ₹1.84 lakh crore over the past six months, signaling subdued conviction amid trade uncertainties, a stronger US dollar, and rupee weakness.