Representative image showing a stock market rise.
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Indian equities are expected to trade firm this week with a positive bias, supported by a mild recovery in the INR/USD and stable global cues. However, with Christmas and New Year holidays leading to quieter trade across global markets, activity may remain subdued and volumes light. Key data releases to watch include US Initial Jobless Claims, US and China Manufacturing PMI figures, and India’s monthly auto sales. With fewer immediate triggers, investor attention would shift to the upcoming Q3 earnings season, which is likely to set the tone for markets as we enter 2026.
In the week gone by, markets ended modestly higher with the Nifty up 0.3%, the Smallcap100 gaining 1.8%, while the Midcap index remained flat. Sector performance was mixed, with Defence (+5.5%), Metals (+2.7%), and FMCG (+0.8%) emerging as key gainers. Defence and Railways stayed in focus on expectations of higher public capex in the upcoming Union Budget, supported by news of the Defence Acquisition Council preparing nearly Rs 80,000 crore worth of orders. Metals continued their strong 2025 momentum with year-to-date gains above 20%, driven by Fed rate-cut expectations, dollar softness, and improving demand visibility from China, alongside disciplined supply and stronger balance sheets.
Recent global data also boosted sentiment, with US GDP growing a robust 4.3% in Q3, the fastest in two years, and jobless claims coming in lower than expected—signalling resilience in the world’s largest economy. Back home, the RBI announced liquidity measures including Rs 2 lakh crore of government bond purchases and a $10 billion swap, which should ease liquidity, support credit growth, and help financial markets stabilise. Notably, 2025 also marked a turning point for Indian banking regulation, with 80+ reforms simplifying rules, enabling M&A financing, and strengthening the foundation for credit-led growth ahead.
On the consumption front, urban demand remains a bright spot, rising 8.8% YoY in October on the back of easing food inflation, better credit transmission, and stable wage trends. Rural demand, however, saw a contraction of 1.3% due to weak farm prices and softer terms of trade. Meanwhile, India and New Zealand have finalised terms for a comprehensive FTA, expected to be signed in early 2026, with bilateral trade targeted to double from the current $2.4 billion over the next five years.
As we close out 2025, the broader market setup remains constructive, supported by improving liquidity, a stabilising earnings cycle, and a policy backdrop that favours investment and credit expansion. Looking ahead to 2026, returns are expected to be earnings-led, with a preference for large caps and a selective, quality-focused approach towards midcaps.
In summary, the market tone remains stable to positive, with Q3 earnings and global macro cues set to guide the next phase of market direction.
(The writer is Head of Research, Wealth Management, Motilal Oswal Financial Services Limited)