India's equity markets have endured their most challenging start to a calendar year in the past decade. The benchmark BSE Sensex declined 1.93% between January 1 and January 10, 2026, marking the worst opening stretch for Indian equities since 2016, when the index had fallen 4.53% amid global growth concerns and China-led volatility.

Market Performance in Opening Week

The selloff intensified during the first full trading week of 2026, with broad-based weakness across market segments.

The broader market indices performed even worse than benchmark indices, with midcap and smallcap stocks declining 2.60% and over 3.00% respectively, signaling a clear shift toward risk aversion among investors.

Foreign Investment Outflows Drive Weakness

Foreign institutional investor (FII) selling emerged as a primary driver of market weakness. Net cash market outflows from FIIs reached ₹11,784 crores through January 9, continuing the negative trend from 2025 when foreign investors were net sellers worth ₹1.66 lakh crores.

Despite robust domestic institutional investor buying of nearly ₹17,900 crores in January, the Nifty still declined over 600 points during the week, highlighting the intensity of negative sentiment.

Geopolitical and Trade Concerns

According to Dr. Ravi Singh, Chief Research Officer at Master Capital Services, multiple factors contributed to the market pressure. Rising geopolitical uncertainty emerged after the US approved Russian sanctions legislation that could lead to steep tariffs, including on countries purchasing Russian energy. The lack of progress on the anticipated US-India trade agreement, which markets expected to advance early in the year, further dampened investor confidence.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, noted that foreign investors entered 2026 continuing the selling trend from the previous year, when FII outflows also contributed to a nearly 5.00% decline in the rupee.

Sector-wise Impact

The selloff affected most sectors, with cyclical and policy-sensitive segments bearing the heaviest impact.

Defensive sectors such as defence stocks and consumer durables demonstrated relative resilience, ending the week with modest gains as investors sought safety in domestic demand-linked themes.

Market Outlook and Investment Strategy

Ajit Mishra, SVP of Research at Religare Broking, observed that the sharp decline has broken the Nifty's short-term uptrend, with the index slipping below key moving averages and signaling potential near-term weakness unless it decisively recovers lost levels.

Vinod Nair, Head of Research at Geojit Investments, emphasized that while near-term volatility appears likely, India's domestic fundamentals remain supportive. Strong GDP growth, resilient credit demand, and steady consumption trends could attract selective buying opportunities even if headline indices remain range-bound.

Analysts recommend focusing on quality large-cap stocks, avoiding aggressive positions in high-risk segments, and maintaining preparedness for short-term market swings. The consensus suggests that sustained market recovery will likely depend on two critical factors: a turnaround in FII investment flows and clearer signals regarding global trade developments and earnings growth momentum.

BSE has announced a trading holiday scheduled for January 15, affecting three specific market segments. The exchange will suspend trading activities in currency derivatives, new debt securities, and tri-party repo segments on this date.

Affected Trading Segments

The trading holiday will impact the following segments:

Market Operations Impact

The announcement specifically covers currency derivatives trading, which includes various foreign exchange instruments traded on the platform. The new debt segment, which facilitates trading in recently issued debt securities, will also remain closed during this period.

The tri-party repo segment, which enables repurchase agreement transactions with a third-party custodian, will similarly observe the trading holiday. This segment plays a crucial role in short-term funding operations for market participants.

Exchange Schedule

While these three segments will observe the trading holiday, other segments of the exchange are expected to continue their regular operations unless specified otherwise. Market participants in the affected segments should plan their trading activities accordingly and adjust their strategies for the temporary suspension.

The exchange typically announces such holidays in advance to ensure market participants have adequate time to prepare for the temporary closure of specific trading segments.