Indian equity markets head into the new week under a cloud of caution after witnessing their sharpest weekly fall in more than three months. A powerful mix of global uncertainties and domestic triggers—ranging from renewed US tariff concerns and crucial inflation data to a packed earnings calendar and sustained foreign investor selling—is expected to dictate market direction in the days ahead.
Last week marked a clear change in sentiment. After two weeks of gains, benchmark indices lost momentum, with the NIFTY50 and Sensex sliding around 2.5% each. The sell-off gathered pace mid-week as fears resurfaced over potential steep tariffs by the United States under President Donald Trump. These worries were compounded by underwhelming quarterly updates from heavyweight stocks, which dented confidence at a time when valuations were already stretched.
Volatility reflected the nervous mood. The India VIX climbed sharply, and markets closed lower for five consecutive sessions, signalling a shift from optimism to risk aversion. Broader markets felt even more pressure, as investors trimmed exposure to midcap and smallcap stocks amid uncertainty over global cues and earnings visibility.
Sectoral trends: pressure across the board
Sector performance last week was largely negative, with only a few pockets showing resilience. Defensive areas such as defence and select consumer segments managed modest gains, while most cyclical sectors ended deep in the red. Energy, oil & gas, and metals emerged as the biggest laggards, dragged down by global commodity concerns and heavy selling in index heavyweights.
Oil and gas stocks remained under pressure due to a combination of geopolitical worries and fears around possible secondary tariffs linked to Russian crude purchases. Stocks like Reliance Industries, BPCL, Indian Oil, and Hindustan Petroleum witnessed notable declines as investors preferred to reduce risk ahead of key global events and the upcoming Union Budget.
US inflation data in sharp focus
Globally, all eyes will be on the US Consumer Price Index (CPI) data for December, scheduled for release this week. Market participants expect inflation to remain broadly stable, with headline CPI projected around the mid-2% range and core inflation slightly above 3%. If the data aligns with expectations, it could support hopes that the US Federal Reserve may move closer to rate cuts later in the year.
However, any upside surprise could revive fears of a prolonged high-rate environment, strengthening the dollar and putting pressure on emerging market equities, including India. Given the fragile sentiment, inflation data could prove to be a decisive trigger for short-term market direction.
Earnings season gathers momentum
On the domestic front, the Q3 earnings season moves into high gear. Results from major IT companies such as TCS, Infosys, HCL Tech, Wipro, and Tech Mahindra will be closely watched for signs of demand recovery and margin trends. Banking majors, including HDFC Bank and ICICI Bank, will also be in focus, especially after recent concerns around growth and asset quality.
Reliance Industries’ earnings will be another key event, given its significant weight on the indices and influence across multiple sectors. Stock-specific reactions to earnings are likely to drive market moves, even if broader indices remain range-bound.
In the US, the Q4 earnings season begins with major banks reporting results. Their commentary on lending activity, margins, and credit conditions will offer insights into the health of the global financial system amid changing rate expectations.
FII activity and technical setup
Foreign institutional investors continue to adopt a cautious stance. Persistent selling in the cash market, combined with defensive positioning in derivatives, suggests that overseas investors remain unconvinced about the durability of any near-term rally. Market breadth has also weakened, indicating that recent gains lacked strong participation.
Technically, the NIFTY has slipped below key support levels and is trading under important short-term moving averages. The zone around 25,400 now acts as an important support, while the 26,200–26,250 range is likely to cap any immediate upside.
Overall, the week ahead is expected to remain volatile. With global cues, inflation data, earnings outcomes, and FII flows all in play, investors may prefer a selective and cautious approach until clearer trends emerge.