Market signals point to a turbulent time ahead. Fear gauge India Vix rose 7.63% to 12.73 as the Nifty fell way past the crucial 25,500 mark, suggesting higher volatility and further decline. The Nifty closing below its 50-day simple moving average also suggests a downtrend.
The Nifty fell 1.38% or 353 points to close at 25,232.5, its lowest since 13 May 2025, while the Sensex fell 1.28% or 1065 points to 82,180.47. The rupee fell 0.07% to a new low of 97.9 to the dollar, as foreign investors sold. Bears remained firmly in control. Out of Nifty’s 50 stocks, 47 fell while just three rose. The top losers were Adani Enterprises, Bajaj Finance, Jio Finance, Eternal and Coal India.
The fall in Nifty also comes after retail investors sold large-cap stocks while domestic institutional investors (DIIs) net sold shares worth ₹3,665 crore and FIIs sold a lower amount of ₹2,938 crore, as per provisional data.
Caution
“Sentiment could remain cautious over the next few weeks until clarity emerges on the European trade deal, with markets facing a busy period ahead that includes the US Fed meeting, the Union budget, possible developments on the trade deal, and the RBI policy,” said Alok Singh, chief investment officer at Bank of India Mutual Fund. According to Singh, these events may keep markets on edge, and nervous investors may take some risk off the table.
At the World Economic Forum in Davos, European Commission president Ursula von der Leyen said India and the European Union are on the cusp of a “historic trade agreement”, days ahead of her visit to New Delhi for the India-EU summit on 27 January. The US Federal Reserve’s rate-setting panel meets on 27 and 28 this month, while the Union budget will be presented on 1 February.
The broader markets saw greater carnage, as the Nifty Midcap and Smallcap indexes plunged 2.62% and 2.6%, respectively, on Tuesday. The Nifty Midcap index is now 5.8% below its record high of 22,650 on 7 January.
Negative sentiment
Since the year’s start, the Nifty has been making lower highs and lower lows, a sign of negative sentiment. It has fallen 4.32% since its recent high of 26373 on 5 January. An index is said to have corrected once it falls 10%, and entered a bear market once it loses 20%.
Cautious investors turned to precious metals, as gold and silver at the MCX spot market rose 2.38% and 5.38% respectively on Tuesday.
While continued buying by domestic institutions has so far cushioned the market’s fall, escalating global tensions could accelerate FPI selling. So far this year, FPIs have sold shares worth ₹27,504 crore after selling ₹1.6 trillion in 2025.
The Indian market, which has been underperforming global peers for over a year, is likely to face further volatility before the Union budget. The underperformance has been driven by rising US bond yields and slower corporate earnings growth at home relative to market valuations.
Earnings upset
Year-to-date, the Nifty has fallen by 3.53%, while the Shanghai Composite Index and the Kospi have risen by 3.56% and 15.94% respectively. Nikkei 225 has risen 5.27%, Hangseng has risen 3.34%, and the US Dow Jones has risen 2.7%.
Quarterly earnings have disappointed so far. Net profit at the nine Nifty companies which have reported earnings so far grew 1.5%, while revenue grew 2.16% from the year earlier.
“While estimates point to a recovery, this hinges on two factors: a favourable base effect, and a pickup in incremental economic activity. A return to double-digit growth in GST collections would signal a consumption revival, while higher government capex aligned with budget targets would help reactivate the economy,” said Alok Agarwal, head of quant and fund manager at Alchemy Capital Management.
If broader growth strengthens, the improving risk-reward across prices and valuations may begin to reflect in earnings and market sentiment, Agarwal added.
The Nifty 50 index is currently trading at a 12-month forward earnings of 19.89x, compared to the three-year average PE of 19.36.
George Thomas, fund manager at Quantum Mutual Fund said, “India’s relative valuation compared with US markets and the emerging market index, which was above long-term averages earlier, has now moderated. At the same time, earnings growth is showing signs of bottoming out.”
With these factors in place, India should be a beneficiary whenever global risk appetite improves, although it remains difficult to predict when the global situation will settle, Thomas added.
