CHENNAI: Indian equity markets posted a positive finish in the holiday-shortened week from December 29, 2025 to January 2, 2026, shaking off year-end caution to begin the new calendar year on a firmer footing. After a subdued start marked by profit booking and thin trading volumes, sentiment gradually improved as investors returned to risk assets, pushing benchmark indices to fresh record levels by the end of the week.
Markets opened the week under mild pressure as investors locked in gains ahead of the year-end and global cues remained mixed. Trading activity was muted for much of the early part of the week, reflecting the holiday season and a wait-and-watch approach from institutional participants. However, momentum picked up as the new year began, with buying interest emerging across sectors and supporting a broad-based recovery.
By the close of the week, both the Sensex and the Nifty had advanced, with the Nifty scaling new all-time highs and the Sensex registering a sharp jump in the final session. The strong close reflected improving confidence around the domestic growth outlook, expectations of steady corporate earnings, and supportive global trends. The first full trading session of 2026 saw cautious moves initially, but optimism strengthened as the day progressed, culminating in a decisive rally on January 2.
Sectorally, the rally was led by cyclical and economically sensitive segments. Metal stocks outperformed, driven by firm global commodity prices and expectations of sustained demand. Banking stocks, particularly PSU lenders, also saw strong buying interest, helping the Bank Nifty touch record levels during the week. Auto stocks gained support on the back of expectations of stable demand trends and improving margins. In contrast, defensive pockets such as FMCG underperformed, weighed down by stock-specific pressure and concerns around margin outlooks. The IT sector also lagged the broader market, reflecting continued caution over global tech spending and slower deal momentum.
Market analysts believe that market breadth remained healthy, with midcap and smallcap stocks outperforming frontline indices. The broader market rally indicated increasing investor willingness to take exposure beyond large caps, supported by relatively stable volatility levels. Tiered buying across segments suggested that the upmove was not restricted to a handful of heavyweight stocks but was more evenly distributed.
"Indian equity markets opened 2026 on a strong and confident note, with benchmark indices posting fresh record highs amid broad-based participation. Buying interest remained robust across banking, auto, metals, and PSU stocks, while resilient domestic liquidity continued to absorb intermittent profit booking," says R Ponmudi, CEO at brokerage and wealth management firm, Enrich Money.
The Nifty 50 surged to new all-time highs, supported by optimism surrounding upcoming Q3 earnings and sustained confidence in India’s structural growth story. While FMCG stocks witnessed selective pressure due to sector-specific challenges, the overall market tone remained decisively bullish. The week reflected a healthy rotational rally at elevated levels, laying a constructive foundation for the new calendar year, he added.
Looking ahead, market focus is set to shift toward the Q3 earnings season, with traders likely to build positions selectively ahead of results from key index heavyweights. Beyond earnings expectations, high-frequency indicators tracking industrial activity will be closely monitored to confirm the resilience and durability of the broader economic recovery. Domestically, S&P Global Services and Composite PMI data will provide further insights into business momentum and employment trends, with manufacturing activity expected to remain supportive amid policy tailwinds and improving rural demand.”
He added that as markets settle into 2026, Indian equities are expected to retain an upward bias, underpinned by strong domestic fundamentals, steady domestic institutional inflows, and expectations of healthy corporate earnings growth. Seasonal optimism and comfortable liquidity conditions continue to support a buy-on-dips approach, particularly in fundamentally strong names, he said.
Geographically, market activity was driven by institutional flows returning after the holiday lull, while retail participation remained steady. Volatility stayed contained through the week, reinforcing a buy-on-dips sentiment among traders and short-term investors. Technical indicators also remained supportive, with key support levels holding firm during minor intraday pullbacks.
"Globally, attention will remain on US non-farm payrolls and unemployment data, which could shape expectations around the Federal Reserve’s rate path and overall risk appetite. Stable commodity prices and relatively easing geopolitical tensions are likely to support sentiment.
While short-term volatility around global data releases cannot be ruled out, the underlying market structure remains firmly positive, encouraging a selectively optimistic approach as 2026 unfolds," Ponmudi added.
Overall, the final week of December and the opening days of January marked a transition from year-end consolidation to a renewed bullish tone. While early trade reflected caution and low volumes, the strong finish underscored confidence in the domestic equity story as markets entered 2026. Going ahead, investors are likely to track corporate earnings updates, global macro developments and sector-specific triggers to assess whether the current momentum can be sustained in the weeks ahead.