Indian equity markets experienced their worst single-day decline in seven months as concerns over global trade developments and upcoming policy events weighed heavily on investor sentiment. The benchmark Nifty fell below critical technical levels while volatility indicators surged, pointing to continued uncertainty in the near term.

Market Performance and Technical Indicators

The Nifty closed at 25,232.50, down 353 points or 1.38%, marking its lowest level since May 13, 2025. The Sensex declined 1,065 points or 1.28% to close at 82,180.47. Market volatility spiked significantly, with India VIX rising 7.63% to 12.73, indicating heightened fear among market participants.

The selloff was broad-based, with 47 out of 50 Nifty stocks declining. The worst performers included Adani Enterprises, Bajaj Finance, Jio Finance, Eternal, and Coal India. The Nifty's close below its 50-day simple moving average suggests the beginning of a potential downtrend.

Institutional Activity and Currency Movement

Both domestic and foreign institutional investors turned net sellers during the session. Domestic institutional investors sold shares worth ₹3,665 crore, while foreign institutional investors offloaded ₹2,938 crore worth of equities, according to provisional data.

The Indian rupee weakened 0.07% to touch a new low of 97.9 against the US dollar, reflecting the broader risk-off sentiment among investors.

Broader Market Impact

Mid and small-cap segments witnessed even steeper declines. The Nifty Midcap index plunged 2.62%, while the Nifty Smallcap index fell 2.60%. The midcap index now trades 5.8% below its record high of 22,650 achieved on January 7.

Since the beginning of the year, the Nifty has been forming lower highs and lower lows, indicating negative sentiment. The index has declined 4.32% from its recent peak of 26,373 on January 5, and is down 3.53% year-to-date.

Upcoming Events and Market Outlook

Market participants are closely watching several key events that could influence near-term direction. Alok Singh, Chief Investment Officer at Bank of India Mutual Fund, noted that "sentiment could remain cautious over the next few weeks until clarity emerges on the European trade deal, with markets facing a busy period ahead."

At the World Economic Forum in Davos, European Commission President Ursula von der Leyen indicated that India and the European Union are on the verge of a "historic trade agreement," adding to market anticipation.

Earnings and Valuation Metrics

Quarterly earnings have been disappointing, with nine Nifty companies that have reported results showing net profit growth of just 1.50% and revenue growth of 2.16% compared to the previous year. The Nifty 50 currently trades at a 12-month forward earnings multiple of 19.89x, compared to its three-year average of 19.36x.

Investors sought refuge in precious metals, with gold and silver on the MCX spot market rising 2.38% and 5.38% respectively. Foreign portfolio investors have sold shares worth ₹27,504 crore so far this year, following massive outflows of ₹1.6 trillion in 2025.

The Bank Nifty index has emerged as a relative outperformer in 2026, declining approximately 2% while the broader Nifty 50 has dropped over 4% during the same period. This divergence has caught market attention as both indices navigate through a correction phase after hitting record highs earlier this month.

Market Performance Comparison

Both indices reached their lifetime peaks on January 5, with Bank Nifty touching 60,437.35 and Nifty 50 hitting 26,373.20. However, their subsequent performance has diverged significantly. On January 20, Bank Nifty closed at 59,404.20, down 0.81% for the session, while Nifty 50 dropped to a three-month low of 25,171.35 before recovering to close at 25,232.50.

Factors Supporting Banking Sector Resilience

Santosh Meena, Head of Research at Swastika Investmart, attributes Bank Nifty's relative strength to robust momentum in PSU banks driven by strong quarterly earnings and broad-based positive sector trends. The Nifty PSU Bank index demonstrated this strength by hitting a fresh 52-week high of 9,093.65 during early trading on January 20, though it later erased gains and fell over 1.3%.

The resilience is further supported by renewed institutional interest as mutual funds identify attractive valuations within the banking space. Additionally, the RBI's monetary policy stance has provided structural support through prudent liquidity measures.

Fundamental Strength and Outlook

Pranav Koomar, Founder and CEO of PlusCash, emphasizes that the banking sector's relative resilience reflects strong balance sheets, steady credit growth, and greater earnings visibility. However, he cautions that some correction cannot be ruled out if the broader market slide continues, though any Bank Nifty decline would likely be more limited unless there's a significant macro or liquidity surprise.

Harshal Dasani, Business Head at INVasset PMS, notes that the index's composition provides natural protection. Unlike Nifty 50's exposure to global cyclicals and rate-sensitive sectors, Bank Nifty is tilted toward businesses with steadier cash flows, lower balance-sheet stress, and more domestic demand visibility.

Technical Analysis and Support Levels

Technical analysts provide a mixed but generally constructive view on Bank Nifty's near-term prospects. The index is expected to consolidate within the 58,700-60,400 zone as it digests recent gains and builds a foundation for future moves.

Drumil Vithlani, Technical Analyst at Bonanza, highlights that Bank Nifty maintains its major support near 58,650 while Nifty 50 has broken crucial support levels. The banking index remains in a sideways-to-positive range, trading near its 20-week EMA with healthier RSI readings compared to the broader market.

Market Positioning and Risk Assessment

Choice Broking notes that Bank Nifty has exhibited relative resilience around 59,800-60,000 levels, though hesitation around 60,000 indicates some indecision. A break above 60,000 could revive short-term bullish sentiment, while a breach of 59,500-59,600 might signal extended consolidation.

Axis Securities identifies 60,000 as a key pivot level for the current expiry, with 59,500 acting as strong support backed by heavy Put open interest. The 60,000 level remains major resistance, marked by the highest Call open interest, suggesting significant options activity around these levels.