Moneycontrol Pro Market Outlook | FIIs turn most bearish ever: Is a market bottom near?

The week's market turmoil was triggered by a confluence of geopolitical developments.

Dear Reader,

Indian equity markets endured a brutal second week of 2026, with the Nifty 50 and Sensex falling for five consecutive sessions amid mounting concerns over global trade tensions and the threat of punitive US tariffs. The sell-off erased approximately Rs 13.49 lakh crore in investor wealth, marking the worst weekly performance in over three months.

The benchmark Nifty 50 declined 2.45 percent, while broader indices fared worse—mid-caps fell 2.6 percent and small-caps plunged 4 percent. Sectorally, Oil & Gas, Energy, and Infrastructure bore the brunt with 4-5 percent declines, while Metal, Realty, Media, and Auto sectors each slipped over 2 percent. Defence and Consumer Durables bucked the trend with gains of 1.3 percent and 1 percent respectively.

Foreign institutional investors continued their exodus, selling equities worth Rs 9,209.90 crore during the week. The week's market turmoil was triggered by a confluence of geopolitical developments. The US military action in Venezuela and the subsequent arrest of the country's president and first lady initially rattled global markets. While oil markets showed a muted reaction to these events, broader market volatility spiked noticeably.

However, the decisive blow to Indian investor confidence came from reports that the US President was contemplating a draconian 500 percent tariff on India unless the country ceased importing oil from Russia. This threat hung over the markets throughout the week, fuelling sustained selling and leaving Indian indices among the worst performers globally.

The contrast with US markets was stark. American equities advanced during the first full trading week of the year, with most major indices reaching all-time highs as investors largely shrugged off escalating geopolitical tensions. This divergence highlighted India's particular vulnerability to the threatened tariff regime.

Looking ahead, Indian markets are likely to remain under pressure as uncertainty over potential tariffs continues to cloud the outlook. The corporate earnings season will also play a crucial role in determining the market's direction in the coming weeks.

Downside risk persists

The Nifty index stumbled once again at a critical juncture, failing to decisively breach and hold above the important resistance level of 26,300. The weekly chart has now formed a bearish engulfing pattern, establishing the recent high of 26,373 as a significant near-term resistance. Until the index can convincingly break above this level, it appears poised to either drift sideways or trend lower in the short term.

Adding to the bearish outlook, the Nifty has broken below its rising trend line, handing the bears a tactical advantage. The average swing indicator—a tool used to identify short-term tops and bottoms—suggests further downside potential remains. Historically, this indicator signals a short-term bottom when readings drop below 20, and current levels indicate that threshold has not yet been reached. In the near term, the index could test the November low of 25,300 before finding support.

Source: web.strike.money

The current reading of the percentage of Nifty stocks trading above their 20-day simple moving average stands at 42 percent. Historically, short-term market bottoms tend to form when this indicator drops below the 20 percent threshold, suggesting that further downside remains likely before a meaningful reversal takes hold. Given this technical setup, the November low of 25,300 is expected to serve as a critical support level that traders should watch closely in the coming sessions.

Source: web.strike.money

Foreign institutional investors have taken an unprecedented bearish stance on Indian equities, with their net short position in index futures reaching 1,86,063 contracts—the highest reading on record when adjusted for historical lot size changes. In percentage terms, their current net long position of just 7.53 percent hovers near an all-time low. History suggests that such extreme positioning typically leads to double-digit returns over the following three to four months once a market bottom is established. However, there are no clear signs yet that such a bottom is forming.

Both short-term indicators point to additional downside risk in the immediate term. From a technical perspective, the 20-week simple moving average at 25,580 represents crucial near-term support. Should the Nifty breach this level, a deeper correction toward the 40-week exponential moving average at 25,168 becomes likely. While such a decline would be painful, it could paradoxically prove constructive—potentially serving as the final capitulation needed before a significant market bottom takes shape.

Source: web.strike.money

The weight of excessive bearish sentiment across multiple indicators is beginning to flash contrarian buy signals from a medium-term perspective. However, patience remains essential, as short-term sentiment indicators have yet to show clear signs of bottom formation.

In essence, the market faces a tale of two timeframes: short-term pain appears likely to persist, but the medium-term outlook is growing increasingly attractive. The risk-reward equation is gradually tilting in favour of the bulls for those willing to look beyond the immediate turbulence.

Sector Rotation

Nifty 50 – The Benchmark Index ended lower by -2.45% this week and closed at 25683.30.

Weekly RRG: 

Leading Quadrant: The Nifty IT index is one of the few indices that continue to see a strong uptick in momentum and relative strength. Nifty Oil & Gas has seen a sharp deterioration in momentum as well as relative strength this week. Nifty Bank and Nifty Private Bank gained some relative strength this week, but the momentum continues to weaken, which is not a good sign.

Weakening Quadrant: Nifty PSU Banks and Nifty Infrastructure have entered the weakening quadrant, and both these indices have seen a drop in momentum as well as relative strength this week. Nifty Metal and Nifty Auto continue to gain momentum, but both these indices have seen a downtick in relative strength this week.

Improving Quadrant: Nifty Pharma is the only index in the improving quadrant, and it is seeing an uptick in momentum and relative strength this week.

Lagging Quadrant: The Nifty Financial Services index has entered the lagging quadrant this week, and it has seen a decline in momentum as well as relative strength. Nifty Energy has seen a sharp decline in momentum as well as relative strength this week, whereas Nifty Consumer Durables has seen a significant improvement in momentum this week. Nifty PSE and Nifty MNC continue to gain momentum, but there is still no improvement in relative strength yet.

Stocks to watch

Among the stocks expected to perform better during the week are Eicher Motors, Indus Tower, MTARTECH, and SABTNL.

Cheers,

Shishir Asthana