CHENNAI: Indian equity markets went through a choppy and ultimately weak week between January 5 and January 10, 2025, as early optimism gave way to sustained selling pressure and growing investor caution. The benchmark indices struggled to find a clear direction for much of the period, with midweek gains failing to hold and the broader market slipping deeper into negative territory by the end of the week.
The week began on a cautious footing, with investors weighing mixed global cues and concerns about stretched valuations after the strong rally seen toward the end of 2024. Trading on Monday and Tuesday reflected this uncertainty, as both the Sensex and the Nifty moved in narrow ranges, with buying in select large-cap stocks being offset by profit booking in others. Market participants appeared reluctant to make aggressive bets ahead of the start of the corporate earnings season and amid persistent worries over foreign investor outflows.
Midweek brought a brief recovery, as heavyweight stocks in banking, energy and automobiles attracted buying interest. A handful of large-cap names helped lift the indices, allowing the Sensex and Nifty to post modest gains during this phase. This rebound was driven largely by bargain hunting in stocks that had corrected in the previous sessions, as well as some optimism that upcoming quarterly earnings could offer pockets of positive surprise. However, the strength remained selective and did not extend meaningfully to the broader market.
"The markets ended last week on a negative note, reflecting heightened risk aversion triggered by renewed US tariff threats and rising geopolitical tensions. The proposed US tariff measures—largely linked to countries continuing to purchase Russian oil—remain a key near-term overhang for Indian markets. 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," says R Ponmudi, CEO, Enrich Money.
Importantly, he added, foreign institutional investor outflows have remained moderate rather than disorderly, pointing to controlled risk reduction rather than panic-driven selling.
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, said Ponmudi.
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.
As the week progressed, selling pressure returned, particularly in mid-cap and small-cap stocks, which had been among the best performers in recent months. Investors used the midweek rise as an opportunity to book profits, and this weighed heavily on overall market sentiment. By Thursday and Friday, the tone had clearly turned defensive. The headline indices slipped into the red again, and declines accelerated toward the end of the week as traders cut exposure ahead of the weekend and ahead of key global and domestic data releases.
Foreign institutional investors continued to be net sellers through the week, which added to the pressure on Indian equities. The persistent outflows reflected global risk aversion and shifting expectations around interest rates and growth, as well as a preference for safer assets in an uncertain macroeconomic environment. At the same time, domestic institutional buying, while supportive, was not strong enough to fully offset the impact of overseas selling.
Sectorally, the week saw a clear divergence in performance. Information technology stocks showed relative resilience, helped by hopes of improved demand from overseas clients and some stability in the rupee. In contrast, sectors such as real estate, healthcare, and several public sector banking stocks faced sustained selling, dragging the broader indices lower. The market breadth remained weak for most of the latter half of the week, with a larger number of stocks declining than advancing, especially in the mid-cap and small-cap segments.
By the close on Friday, January 10, both the Sensex and the Nifty had ended lower for the week, reflecting a net loss after the midweek recovery failed to sustain. The broader market fared worse, with sharper declines in smaller stocks highlighting the shift toward risk aversion. Overall, the week was marked by volatility, cautious trading, and a growing preference for safety over risk, setting a subdued tone for Indian equities as they moved into the second half of January.
IT Earnings, macro data to drive market direction next week
Market focus in the coming week will shift firmly to third-quarter earnings from India Inc, with heavyweight IT companies set to take centre stage and drive index-level direction. 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.
"Investor focus will be firmly on post-results management commentary and forward guidance. Key areas to watch will include trends in client IT budgets for the current year, signs of recovery in discretionary spending across industries, and hiring plans—especially in the context of tighter H-1B visa approvals. Equally important will be updates on progress in AI-led technologies and infrastructure, which are increasingly being viewed as the next growth engine for the sector," believes Ponmudi.
Earnings from Reliance Industries Ltd will be another major trigger next week, given its significant weight in the indices. Investors will 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 US 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 expects.