Indian equity markets opened Monday's trading session with marginal losses, reflecting cautious sentiment amid thin year-end volumes and mixed global cues. The subdued opening came as investors balanced positive signals from some Asian markets against persistent concerns about foreign institutional investor outflows and typically reduced trading activity during the year-end period.

Market Opening Performance

The benchmark indices showed restrained movement at the opening bell, with both major indices trading in negative territory despite selective sectoral strength.

Sectoral Performance and Stock Movements

Metal stocks emerged as the primary gainers on the Nifty 50, providing some support to the broader market sentiment. The sector's outperformance reflected positive commodity price movements and improved demand outlook.

Conversely, infrastructure and financial stocks faced selling pressure, with port and banking stocks leading the declines.

Market Analysis and Technical Outlook

Market analysts highlighted the impact of continued foreign fund outflows and thin trading volumes on market sentiment. "Nifty remained under pressure through Friday, ending 100 points lower at 26,042 amid thin holiday volumes, while Sensex fell 367 points to 85,041 and Bank Nifty slipped 172 points to 59,011," said Prashanth Tapse, Senior VP (Research) at Mehta Equities Ltd. "Supportive global cues were overshadowed by FII selling of ₹318.00 crore and lingering US-India trade frictions."

Technical analysts identified key support and resistance levels for the trading session. "The Nifty 50 remains technically constructive despite recent consolidation," said Aakash Shah, Technical Research Analyst at Choice Equity Broking. "Immediate support is placed at 25,850-25,900, and a breach below this zone could drag the index towards 25,800. On the upside, 26,150-26,200 remains a crucial resistance band."

Global Market Cues and Currency Movement

Global markets presented mixed signals, with Japan's Nikkei 225 trading lower by around 0.30%, while South Korea's KOSPI outperformed with gains of nearly 1.50%. US stock markets had risen during the shortened holiday week, with the S&P 500 and Dow Jones Industrial Average both reaching record highs, supported by robust Q3 GDP expansion at 4.30% annualised rate.

The Indian rupee weakened to close at 89.85 against the US dollar on Friday, attributed to persistent foreign outflows and increased dollar demand from metal importers. "USD/INR is trading marginally higher near the 89.80 zone, recovering modestly amid renewed dollar demand and year-end positioning," said Ponmudi R, CEO of Enrich Money.

Market Outlook and Key Factors

Looking ahead, market participants are tracking multiple factors including India-US trade developments, FII flows, rupee movement, crude prices and upcoming Q3 earnings. "India's macros are in Goldilocks setting with robust economic growth and stable financial construct," said Dr VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited. "The more important factor from the market perspective—earnings growth—is set to recover from Q3 FY26 onwards."

With the IIP data release and F&O monthly expiry approaching, investors are adopting a selective approach, reinforcing expectations of continued range-bound trading in the near term amid thin year-end volumes.

Indian markets are likely to open negative on Monday as Gift Nifty signals a flat start, dampening hopes for a year-end rally. The subdued outlook comes amid record Foreign Institutional Investor (FII) selling, which has hit unprecedented levels, marking the worst outflow since FII investing began in India.

FII Selling Pressure

The scale of FII outflows has reached alarming levels:

This stark contrast to the previous year highlights the severity of the current market situation. In the previous year, despite FIIs selling ₹1,21,210.00 crore through exchanges, net inflows remained positive due to ₹1,21,637.00 crore in primary market investments.

Economic Growth Projections

Despite the market headwinds, India's economic outlook remains positive. ICRA has projected encouraging growth metrics for the coming fiscal year:

ICRA anticipates a strong first half in FY2026, driven by factors such as festive demand, rural economic recovery, and seasonal upticks in mining and construction activity. However, growth is expected to moderate in the second half due to unfavorable base effects, export slowdown, and reduced government capital expenditure momentum.

Market Outlook

The Indian markets are poised for a challenging start to the week, with volatility expected to persist, particularly in mid- and small-cap segments. Tuesday's monthly settlement day for futures and options contracts on the NSE may further contribute to market fluctuations.

Despite the current challenges, analysts remain cautiously optimistic about future prospects. The robust GDP growth projections and potential for enhanced corporate earnings could provide positive catalysts for foreign investment flows in the coming year. However, until greater clarity emerges, the market is likely to continue its consolidation phase with stock-specific action remaining the dominant theme.

Investors and market participants are advised to closely monitor upcoming industrial production data and global cues for potential directional triggers in this uncertain environment.