The Indian stock market witnessed a broad-based sell-off last week, with both the Nifty 50 and Sensex shedding 2.45% and 2.55%, respectively, their biggest weekly decline since mid-September, as investor sentiment was impacted by elevated geopolitical tensions and fresh tariff warnings from US President Donald Trump on Indian imports.

Further, continued selling by ₹11,800 crore”>FPIs, withdrawing another ₹11,800 crore in the first seven trading sessions of 2026, added pressure to the market. Investors also appeared cautious ahead of the start of the December quarter earnings, keeping overall sentiment fragile.

Ponmudi R, CEO of Enrich Money, said that Indian equity markets ended last week on a negative note, reflecting heightened risk aversion triggered by renewed US tariff threats and rising geopolitical tensions. He noted that the proposed US tariff measures, largely linked to countries continuing to purchase Russian oil, remain a key near-term overhang for Indian markets.

He further explained that since late 2025, benchmark indices have seen intermittent corrective phases of 5–8%, with export-oriented sectors such as IT, pharma, and select midcaps bearing the brunt of the pressure. He added that foreign institutional investor outflows have remained moderate rather than disorderly, pointing to controlled risk reduction rather than panic-driven selling.

Ponmudi also highlighted that estimates of the potential tariff impact on GDP for FY26 range between 0.5% and 0.7%, depending on the final scope of implementation and any countermeasures.

“That said, strong domestic consumption, resilient services exports, and trade diversification toward the EU, ASEAN, and the Middle East continue to provide a partial cushion. The near-term outlook remains cautious over the next 3–6 months, with stabilization likely if diplomatic channels make progress or global trade tensions begin to ease,” said Ponmudi.

Vinod Nair, Head of Research at Geojit Investments, said that Indian equities navigated the first full week of 2026 with caution, reflecting a corrective undertone.

“The week began on a muted note as expectations of higher government borrowing drove bond yields upward, though strong GST collections and healthy bank credit growth provided some support. Market sentiment, however, weakened amid global headwinds, including the Venezuela–US standoff, concerns over Russian oil imports, China’s restrictions on rare earth exports, and continued FII outflows,” he noted.

Analysts point to Q3 results as key market trigger

Ponmudi said that market focus in the coming week will shift firmly to third-quarter earnings from India Inc., with heavyweight IT companies expected to take center stage and drive index-level direction. He noted that HCL Tech, TCS, Infosys, Tech Mahindra, and Wipro, together accounting for nearly 13% of the Nifty’s weight, are scheduled to report, making their results and management commentary critical for broader market sentiment.

He further stated that investor attention will remain on post-results management commentary and forward guidance, with key areas to watch including trends in client IT budgets for the current year, signs of recovery in discretionary spending across industries, and hiring plans, especially given tighter H-1B visa approvals. He further highlighted that updates on progress in AI-led technologies and infrastructure will be equally important, as these are increasingly seen as the next growth engine for the sector.

Ponmudi also said that earnings from Reliance Industries Ltd will be another major trigger next week, given its significant weight in the indices. He explained that investors will closely watch trends across the energy, retail, and telecom businesses, with guidance on demand, margins, and capex likely to drive sentiment.

“On the macro front, key inflation and growth indicators will shape global risk appetite. India’s December CPI, WPI food, and manufacturing inflation data, along with the U.S. core CPI, retail sales, and home sales numbers, will be released through the week. These data points will influence expectations around the pace and timing of monetary policy easing by major central banks, with implications for global capital flows, currency movements, and emerging market sentiment,” he underscored.

Vinod Nair pointed out that clarity on global trade dynamics and Q3 earnings will shape market direction, expecting the volatility to persist in the near term, particularly in US-exposed companies and sectors such as metals and oil & gas.

“However, strong domestic fundamentals, resilient GDP growth, and robust credit trends could underpin selective buying where earnings prospects remain favourable. FPI flows and currency movements will act as key monitorable, while any positive outcome from India–US trade discussions or easing tariff concerns could spark a short-term rebound. Overall, markets are expected to stay range-bound with a mixed bias, looking for a balance between external risks and domestic fundamentals,” added Vinod Nair.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.