The weak start has raised many questions for investors on whether they should be worried, or is this just a temporary setback?
What happened in the first 10 days of 2026
The sell-off gathered pace in the first full trading week of the year. The Sensex fell 2.55% for the week ended January 9 to close at 83,576, while the Nifty 50 dropped 2.45% to 25,683. Broader markets fared even worse, with midcap and smallcap indices falling 2.6% and just over 3%, signalling a clear shift to risk aversion.
According to Dr Ravi Singh, Chief Research Officer at Master Capital Services, the pressure came from a mix of global shocks and domestic caution. He said markets were hit by rising geopolitical uncertainty after the US approved a Russian sanctions bill that could lead to steep tariffs, including on countries buying Russian energy. This was compounded by the lack of progress on the US–India trade deal, which markets had expected to move forward early in the year.
Expectations of mixed Q3 earnings and sustained foreign institutional investor selling added to the negative mood. FIIs sold Indian equities worth Rs 8,808 crore during the week, even as domestic institutional investors bought shares worth Rs 15,700 crore.
Why foreign investors are selling again
FII behaviour has been central to the weak start. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said foreign investors entered 2026 continuing the trend seen last year. In 2025, FIIs were net sellers of Indian equities worth Rs 1.66 lakh crore, which also contributed to a nearly 5% fall in the rupee.
At the start of 2026, there was hope that improving GDP growth and better earnings would bring FIIs back. There were also expectations that the long-delayed US–India trade agreement would be finalised. Instead, geopolitical tensions escalated, especially with US involvement in Venezuela and negative signals on trade talks. As a result, FII selling intensified, with net cash market outflows touching Rs 11,784 crore till January 9.
Despite strong DII buying of nearly Rs 17,900 crore in January so far, the Nifty still fell over 600 points in the week, underlining how weak sentiment has become.
Which sectors were hit the most
The sell-off was broad-based but sharper in cyclical and policy-sensitive sectors. Oil and gas, energy and infrastructure stocks fell between 4.7% and 5.8% during the week, weighed down by trade fears and global commodity uncertainty. Banking stocks also declined, with Bank Nifty underperforming after hitting record highs earlier.
Defensive pockets such as defence stocks and consumer durables held up relatively better, ending the week with modest gains, as investors looked for safety and domestic demand-linked themes.
Ajit Mishra, SVP of Research at Religare Broking, said the sharp fall has broken the Nifty’s short-term uptrend. The index has slipped below key moving averages, signalling further near-term weakness unless it decisively regains lost levels.
Are investors in trouble?
Looking ahead, analysts expect volatility to remain high. Markets are entering the Q3 earnings season, which will be closely tracked for signs of recovery in corporate profits. Inflation data, trade numbers and foreign exchange reserves will also influence sentiment.
Globally, investors are watching the US Supreme Court’s verdict on the legality of Trump-era tariffs, which could have implications for global trade flows. Any positive development on India–US trade talks could offer relief, while further geopolitical escalation may keep pressure on risk assets.
Vinod Nair, Head of Research at Geojit Investments, said that while near-term volatility is likely, India’s domestic fundamentals remain supportive. Strong GDP growth, resilient credit demand and steady consumption trends could attract selective buying, even if headline indices remain range-bound.
For investors, the message from analysts is clear. This is a phase that calls for caution, not panic. Experts advise focusing on quality large-cap stocks, avoiding aggressive bets in high-risk segments, and being prepared for short-term swings. As Vijayakumar put it, a sustained recovery will likely depend on two key triggers: a turnaround in FII flows and clearer signals on global trade and earnings growth.
Data: Ritesh Presswala
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)