While some analysts expect the downtrend from earlier this month to continue, with the Nifty breaking below its crucial 200-day moving average amid persistent foreign portfolio investor selling and a falling rupee, others believe the benchmark is close to bottoming out and could stage a bounce.
A potential rollback of punitive US tariffs on Indian imports and the Reserve Bank of India’s ₹2 trillion-plus liquidity measures”> ₹2 trillion-plus liquidity measures announced on Friday are being cited as possible triggers for a reversal.
Investors will also track moves by foreign portfolio investors (FPIs) this week. FPIs sold a provisional ₹4,113.38 crore in cash on Friday, per BSE and NSE data. They also raised their cumulative bearish bets on index futures to a record 227,533 contracts, despite the extended weekend.
Friday’s selling has taken their cumulative net sales in the current fiscal year through 23 January to ₹1.9 trillion, per depository and exchange data. In the previous year (FY25) their secondary share sales stood at a record high of ₹2.48 trillion.
Despite mutual fund-led domestic institutional investors absorbing the FPI selling, the Nifty has fallen 5% from its record high of 26373.2 on 5 January through 25048.65 on 23 January, when it closed below its crucial 200-day moving average of 25142.77. This is seen as a bearish sign by analysts.
Against FPI cash sales of ₹1.9 trillion so far this fiscal year (1 April-23 January), DIIs have net purchased cash shares worth ₹6.5 trillion.
While this helped the market recover 15% from a 52-week low of 21743.65 on 7 April last year through the 23 January level, it hasn’t been enough to sustain the highs.
Experts divided
“Lack of a concrete action on an India-US trade deal, relatively high valuations amid a slowdown in earnings growth and falling rupee have underpinned FPI selling, and there’s more to come,” cautioned Rajesh Palviya, research head at Axis Securities.
Palviya expects Nifty to come under further downside pressure till 24500 initially, despite “positive ” comments from US treasury secretary Scott Bessent on Friday that the 25% punitive tariff on India could be removed following a steep reduction in Russian oil purchases and RBI’s over ₹2 trillion liquidity infusion into the financial system between 30 January and 12 February, including a dollar-rupee swap.
However, Rajesh Baheti, director of Crosseas Capital, believes the market had likely formed a bottom and could see a sharp jump following the RBI’s liquidity measures, Bessent’s comments and a likely India-EU trade deal.
“I think we should form a bottom around current Nifty levels (25,000) and bounce following FPI short covering due to the RBI measures and positive news on tariffs over the weekend,” Baheti added.
Jyotivardhan Jaipuria, founder of porfolio management services firm Valentis Advisor, believes that Nifty could face more downside until earnings growth picks up amid moderating valuations and the AI trade frenzy.
“Nifty earnings have grown just 6% in the past six quarters through September 2025, while valuations remain sky high at 20 times one year forward earnings. We need to see earnings pick up to around 10-12% which should happen later this year, and a cooling off of the AI trade,” said Jaipuria.
He added that while India’s valuation premium to emerging markets (EM) had fallen from twice the level in September 2024 to around 55% currently, this was largely due to the outperformance of EMs like Korea and Taiwan.
Indeed, global index provider MSCI data shows that MSCI India Index generated a gross return of 4.29% in the year through 31 December 2025, while the MSCI Emerging Markets return had grown 34.36% over the same period.
Independent market analyst Ambareesh Baliga thinks the market could be close to forming a bottom, thanks to positive sentiment over the weekend events, but Rohit Srivastava, founder of IndiaCharts, expects sustained FPI selling to result in further downside through 24,000 levels.
An added cause for concern among investors is the steep fall in the rupee, which hit a new low of 91.97 per US dollar on Friday, down 6.3% over a year, crimping FPI dollar returns.
Apart from cash sales and shorting index futures, FPIs are selling weekly call options on the Nifty, which expire every Tuesday. On Friday, they were cumulative net sellers to the tune of 29,006 contracts–another bearish signal.
