Indian benchmark indices experienced significant selling pressure during the week, with broad-based declines affecting all major market segments. The downturn was attributed to a combination of global and domestic headwinds that weighed heavily on investor sentiment.

Market Performance Overview

The week's trading session reflected widespread market weakness across all segments:

The sell-off was broad-based, with all sectoral indices finishing lower and midcap and smallcap stocks seeing notable wealth erosion.

Key Factors Shaping Market Direction

Q3 Earnings and Corporate Commentary

Underwhelming and cautious Q3 earnings commentary from several corporates emerged as a key trigger, weighing heavily on market confidence. With results from companies such as Axis Bank and ACC due next, investors will closely watch how the market reacts to further earnings cues.

Union Budget Expectations

As markets head into Budget week, volatility is expected to remain elevated, with the possibility of sharp swings on either side for the index. Market participants are positioning themselves according to expectations ahead of the Finance Minister's speech on February 1.

Global Risk Factors

Several international developments continue to create uncertainty:

• US Trade Concerns: Renewed trade concerns between the U.S. and major economies, particularly Europe, have added to market uncertainty
• Geopolitical Tensions: Escalating tensions in the Middle East, especially recent developments involving the U.S. and Iran, have kept global markets on edge
• Crude Oil Supply: Rising fears over potential disruptions in crude oil supply routes and increased military posturing have heightened volatility across asset classes

Technical Analysis and Currency Movement

Market Levels and Support

Analysts suggest that traders remain highly selective and clearly define exit strategies. According to Rajesh Bhosale, Equity Technical Analyst at Angel One, the sharp bounce from the 24,900 mark now acts as immediate support for the monthly expiry.

Currency Outlook

The rupee continues to trade weakly as persistent FII selling in secondary markets weighs on the currency. While domestic macro fundamentals remain relatively stable, elevated global uncertainties are keeping sentiment cautious. Jateen Trivedi, VP Research Analyst at LKP Securities, expects the rupee to remain under pressure with a weak trading range of 91.35-92.25.

Investment Flows

From a flows perspective, foreign and domestic institutional activity showed contrasting patterns:

DII inflows provided meaningful support, helping cushion the broader downside according to data from Master Capital Services.

Indian equity markets are bracing for continued volatility in the run-up to the budget, with analysts sharply divided on the market's near-term direction. The benchmark Nifty has broken below its crucial 200-day moving average amid persistent foreign portfolio investor selling and a weakening rupee, raising concerns about further downside.

Market Performance and Technical Indicators

The Nifty has experienced a significant decline from its recent highs, falling 5% from its record high of 26373.2 on 5 January to 25048.65 on 23 January. The index closed below its crucial 200-day moving average of 25142.77, which analysts view as a bearish technical signal.

Foreign Portfolio Investment Outflows

Foreign portfolio investors continue to maintain a bearish stance on Indian markets, with substantial outflows marking the current fiscal year. FPIs sold a provisional ₹4,113.38 crore in cash on Friday alone, according to BSE and NSE data. Their cumulative net sales in the current fiscal year through 23 January have reached ₹1.9 trillion, compared to record secondary share sales of ₹2.48 trillion in the previous year.

FPIs have also raised their cumulative bearish bets on index futures to a record 227,533 contracts. Additionally, they were cumulative net sellers of weekly call options on the Nifty to the tune of 29,006 contracts on Friday, representing another bearish signal for the market.

Domestic Institutional Response

Despite the significant FPI selling pressure, domestic institutional investors (DIIs) have stepped in to absorb much of the outflow. Against FPI cash sales of ₹1.9 trillion so far this fiscal year, DIIs have net purchased cash shares worth ₹6.5 trillion. This domestic support helped the market recover 15% from a 52-week low of 21743.65 on 7 April last year, though it hasn't been sufficient to sustain the recent highs.

Analyst Perspectives and Market Outlook

Market experts remain divided on the near-term direction. Rajesh Palviya, research head at Axis Securities, expects the Nifty to face further downside pressure till 24500 initially, citing lack of concrete action on an India-US trade deal, relatively high valuations amid slowing earnings growth, and the falling rupee as key concerns.

Conversely, Rajesh Baheti, director of Crosseas Capital, believes the market has likely formed a bottom around current Nifty levels of 25,000. He expects a potential bounce following positive developments including US treasury secretary Scott Bessent's comments about potentially removing the 25% punitive tariff on India and RBI's liquidity measures.

Jyotivardhan Jaipuria, founder of Valentis Advisor, highlighted structural concerns, noting that Nifty earnings have grown just 6% in the past six quarters through September 2025, while valuations remain elevated at 20 times one year forward earnings. He believes earnings growth needs to pick up to around 10-12% for sustained market recovery.

Currency and Global Factors

The rupee's performance adds another layer of concern, hitting a new low of 91.97 per US dollar on Friday, down 6.3% over the year. This decline crimps FPI dollar returns and contributes to continued selling pressure.

Global performance comparisons show India lagging, with MSCI India Index generating a gross return of 4.29% in the year through 31 December 2025, while the MSCI Emerging Markets return grew 34.36% over the same period. India's valuation premium to emerging markets has fallen from twice the level in September 2024 to around 55% currently, largely due to outperformance of markets like Korea and Taiwan.

Policy Support Measures

The Reserve Bank of India has announced liquidity measures exceeding ₹2 trillion between 30 January and 12 February, including a dollar-rupee swap, which some analysts view as a potential catalyst for market stabilization. These measures, combined with potential positive developments on trade relations, could influence market sentiment in the coming sessions.