40 smallcaps give double digit return, broader indices outperformance continue

Nifty FMCG index shed 3.7 percent, and Nifty IT index fell 0.6%.

• Mid and Smallcap indices rose over 1% in December's final week.
• Nifty50 reached record highs above 26,340, gains narrow and led by large-caps.
• Strong auto sales, corporate earnings, and DII support drove market momentum

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Despite the year-end thin trading, India's broader indices, including the Mid and Smallcap, outperformed the main indices by gaining over 1 percent in the final week of December 2025. The market gains were driven by positive cues like strong December auto sales and a better corporate earnings outlook.

BSE Sensex index jumped 720.56 points or 0.84 percent at 85,762.01, while Nifty50 index added 286.25 points or 1.09 percent at 26,328.55.

Among sectors, Nifty Metal and PSU Bank indices added 5 percent each, while Nifty Auto, Media, Energy, Oil & Gas rose 3 percent each. However, Nifty FMCG index shed 3.7 percent, and Nifty IT index fell 0.6%.

Despite remaining buyers in the Friday's session, the Foreign Institutional Investors (FIIs) remained net sellers the Indian equity markets during the first week of 2026, as they sold equities worth Rs 13,180.09 crore. On the other hand, Domestic Institutional Investors (DIIs) extended their support as they bought equities worth Rs 17766.57 crore.

"Nifty has started the year on a firm footing, scaling fresh lifetime highs above 26,340 and reaffirming its broader uptrend. However, the market’s underlying tone remains fragile. December data show that nearly 58% of NSE 500 stocks ended the month lower, while over half of Nifty constituents underperformed the index—highlighting narrow, large-cap-led leadership rather than broad-based strength. This divergence suggests that gains remain concentrated in a few heavyweights, with much of the market yet to participate," said Ashish Chaturmohta, Managing Director & Fund Manager, Apex PMS, JM Financial.

"If Nifty sustains current levels and market breadth improves, a broader participation phase could emerge, making the next leg of the bull market stronger and more sustainable."

"Fundamentally, the rally is supported by improving corporate earnings and macro stability. GST cuts aiding demand, a lower interest-rate environment, positive rural sentiment, and steady domestic institutional support reinforce the underlying strength, while any positive resolution on the US trade front could further influence foreign investor sentiment," he added.

The BSE Small-cap index rose 1 percent supported by Silver Touch Technologies, Orient Technologies, Shalimar Paints, Veranda Learning Solutions, Integrated Industries, Nazara Technologies, Entero Healthcare Solutions, Stallion India Fluorochemicals, Transformers and Rectifiers India, KPI Green Energy, IIFL Capital Services, InfoBeans Technologies, Indo Farm Equipment, United Foodbrands.

On the other hand, Godfrey Phillips India, Indo Thai Securities, Rajesh Exports, Privi Speciality Chemicals, Kothari Industrial Corporation, Tourism Finance Corp of India, Vishnu Prakash R Punglia, Cupid, Bhagiradh Chemicals and Industries, Wardwizard Innovations and Mobility, Deccan Gold Mines shed between 10-20 percent.

Where is Nifty50 headed?

Amol Athawale, VP Technical Research, Kotak Securities

For trend-following traders, 26,250/85500 and 26,100/85000 would act as key support zones. As long as the market is trading above these levels, the bullish momentum is likely to continue. On the higher side, the market could continue rallying till 26,500/86200. Further upside may also push the index up to 26,700/86700. However, below 26,100/85000, the uptrend would become vulnerable.

Sudeep Shah, Head - Technical and Derivatives Research at SBI Securities

Going ahead, for Nifty, the zone of 26,410-26,440 will act as an immediate resistance. Any sustained move above the 26,440 level could lead to Index extending its pullback higher towards the 26,520 level, followed by 26,600. On the downside, 26100 is expected to act as the immediate support followed by the 20-day EMA zone of 26,050-26,000.

Rupak De, Senior Technical Analyst at LKP Securities

The index has broken above its previous swing high, reinforcing a positive trend bias. The bullish crossover of the 20 EMA and 50 EMA further strengthens the upward structure. Additionally, the daily RSI has broken out of its prior consolidation phase, signalling a pickup in momentum.

The trend is expected to remain firm in the near to short term, with a buy-on-dips approach favoring the bulls as long as the index sustains above 26,000. On the upside, a decisive move above 26,350 could open the door for an advance towards 26,600 in the short term.

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