Markets likely to move cautiously

Indian equities are expected to trade with a cautious undertone amid limited near-term clarity on potential punitive tariffs by US. This has weighed on FII sentiments who have intensified their selling over the last few days. In this volatile environment, we suggest investors to focus on domestic themes and avoid export-oriented sectors.

Sentiment remains fragile amid reports of a proposed US bill that could allow punitive tariffs of up to 500% on countries purchasing Russian oil. While the proposal has not been enacted, it has added to geopolitical and trade-related uncertainty.

Key economic data due in the upcoming week include US non-farm payrolls, Unemployment Rate and initial jobless claims, India CPI and WPI inflation prints, US CPI & PPI data and UK GDP.

In the week gone by, markets corrected sharply after touching record highs. The Nifty 50 hit an all-time high of 26,373 on January 5, 2026 but ended the week down -2.5%. Broader markets also saw profit booking, with Midcap and Smallcap indices declining by -2.6% & -3.1% respectively. Volatility intensified amid global uncertainties around trade policy and geopolitical developments, leading to broad-based selling pressure across sectors.

Foreign Institutional Investor outflows intensified, with cumulative selling of over Rs 5,000 crore (until Thursday), a large part of which—around ₹3,300 crore—was seen in a single session, highlighting the sharp acceleration in selling pressure in recent days.

Sectorally, Oil & Gas (-5.8%), Energy (-5.1%), Infrastructure (-4.7%), Capital Goods (-3.4%) and Metals (-2.9%) emerged as the worst performers, while Consumer Durables (+1%) and Defence (+1.4%) outperformed amid selective buying.

The sharp correction in Oil & Gas stocks was driven by global geopolitical developments and policy concerns. News related to US action in Venezuela, along with proposals to impose steep tariffs on countries buying Russian oil, triggered heavy selling in large energy stocks including Reliance Industries. Additionally, concerns around a potential excise duty hike in the upcoming Union Budget led to profit booking, even as global crude prices softened.

Capital Goods stocks declined amid reports that the Indian Finance Ministry may ease restrictions on Chinese firms bidding for government contracts. While the proposed move aims to improve competition, lower project costs and accelerate execution in infrastructure-heavy segments, it has raised near-term concerns around heightened competition for domestic players.

In contrast, Defence stocks gained during the week, supported by elevated global geopolitical tensions and expectations of increased defence preparedness and spending. Banking stocks remained resilient, with Bank Nifty touching a fresh all-time high of 60,437 on January 5, 2026, supported by strong quarterly business updates from both public and private sector banks. Improved festive-season credit demand, benefits from tax cuts aiding consumption, stable margins, controlled credit costs and improving asset quality trends helped sustain investor confidence, keeping the near-to-medium-term outlook constructive.

This week could see heightened volatility, with geopolitical concerns acting as an overhang, while Q3 earnings announcements may provide some support.

(The writer is Head of Research, Wealth Management, Motilal Oswal Financial Services Limited)