The immediate pressure point has been global money flows. Foreign institutional investors (FIIs) are 92% short in index futures and have already pulled out $2 billion from Dalal Street amid renewed anxiety over delays in an India–US tariff deal.
That uncertainty has kept domestic markets on edge, even as negotiations are expected to restart this week, a development that has offered only limited relief so far.
“The market is kind of waiting for that one word called tariff,” said Chakri Lokapriya, CIO-Equities at LGT Wealth. “Until there is a kind of resolution, we are going to be range-bound because that creates a lot of uncertainty.”
Adding to the caution is the looming Union Budget in February, where investors are watching closely for a renewed push on capital expenditure after two muted years.
Markets stuck in a tight range
From a technical standpoint, the benchmarks are showing little conviction.The Nifty has entered a consolidation zone between 25,473 and 25,900, with analysts warning that a decisive break on either side could set the next directional move. Key support lies in the 25,600-25,500 range, levels that have held so far but remain vulnerable.“In the short term, sentiment is likely to remain weak with potential for further downside,” said Rupak De, Senior Technical Analyst at LKP Securities. “Support is placed at 25,600, below which a deeper correction may unfold. On the higher end, resistance is placed at 25,835.”
With earnings season underway, tariff negotiations in flux, and the Budget still two weeks away, traders expect markets to remain largely sideways.
While large-cap stocks have seen some valuation compression, fund managers remain cautious about calling a broad-based bottom, particularly in the broader market.
“While the valuations may have corrected to some extent in the largecaps and certain midcaps, at the broader end of the market, the valuations are still expensive,” said Harsha Upadhyaya, CIO at Kotak Mahindra AMC. “Until and unless there is a real pickup in earnings growth for small caps, we may not see all-around positiveness.”
Upadhyaya added that after nearly one-and-a-half years of consolidation, 2026 could still deliver moderately better returns than 2025, though expectations should remain tempered.
“In our view, either a trade deal or better-than-expected earnings growth during this quarter should make markets come out of this trading range, and for the full year we do expect slightly better returns than 2025. We do expect FY27 to be better than FY26 in terms of earnings growth. Slowly, the market should find a way to move out of this range. However, it is not going to be anything close to the kind of bull run that we saw from 2020 to 2024. It will be a very-very moderate kind of a recovery as compared to the previous year,” the top fund manager said.
That caution is echoed by global brokerages. Arbind Maheshwari, Head of India Equities at BofA Securities, said 2026 returns are unlikely to come from valuation expansion.
“In CY26, Nifty returns will likely be driven by earnings growth rather than valuation re-rating, as Nifty trades near +1SD (~21-21.5x 1Y forward PE), leaving limited scope for further expansion unless earnings accelerate sharply. Our CY26 Nifty target of ~29,000 (+11%) is primarily EPS-driven, not multiple expansion. Earnings trajectory shows FY26 EPS +7%, FY27 +14%, with most cuts behind us -Return expectations should be anchored around EPS delivery,” Maheshwari told ET Markets.
For long-term investors, the volatility is reopening a familiar debate: whether sharp drawdowns present an opportunity.
“What smart investors should do in uncertain, volatile times like now is to remain invested and continue investing in fairly valued quality growth stocks for the long term,” said Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments.
Brokerage Nuvama struck a similar note, suggesting that 2026 could be a year of reconciliation for post-Covid divergences, potentially resetting valuations and expectations and laying the groundwork for a fresh market cycle.
For now, though, India’s winter market chill is real. With foreign flows cautious, policy clarity awaited, and earnings still doing the heavy lifting, the message from the Street is clear: this is no panic-buy moment, but for patient investors, fear may finally be getting priced in.
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