Market Outlook: FII trend, monthly expiry date are among the most important factors to watch this week

Markets ended the shortened holiday week with modest gains, continuing their ongoing consolidation trend. Despite a strong start, benchmark indices remained largely range-bound in the second half, pressured by mixed global signals and subdued year-end trading volumes. The Nifty closed at 26,042.30, while the Sensex ended at 85,041, indicating a cautious but stable market tone.Investor sentiment was influenced by a mix of domestic macroeconomic data and international developments. India has finalized a Comprehensive Free Trade Agreement (FTA) with New Zealand, marking a step forward in its efforts in Indo-Pacific outreach and export diversification. However, growth in the eight core infrastructure sectors slowed sharply to 1.8% in November, signaling a short-term slowdown in industrial activity.

Foreign Institutional Investors (FIIs) resumed their selling streak after a brief lull last week, as stable currency trends, record-breaking bullion prices and poor festive season participation further strengthened the subdued trading environment.Here are the key factors that could influence market movement as trading resumes this week:

1. Monthly Expiration: The coming week marks the transition to calendar year 2026 and is likely to witness increased volatility due to the F&O expiration in December.

2. Domestic data: Key domestic data to monitor includes industrial production data for November, government budget value figures, external debt statistics and the final HSBC Manufacturing PMI value.

3. Macroeconomic Signals: Global markets will be closely watching US macroeconomic signals, including the FOMC minutes and updates on the Federal Reserve’s balance sheet.4. Technical Moves: The Nifty index continues to consolidate near record highs, signaling a healthy pause within the broader uptrend. Immediate support is provided in the 25,500–25,700 zone, while initial resistance is seen around 26,200. A sustained outbreak could open the way to the 26,500–26,700 zone.

“With liquidity conditions remaining subdued and key macroeconomic signals expected, markets are likely to remain within a range in the near term. Investors can continue to adopt a buy-on-dips strategy, focusing on large-cap stocks and select cyclical stocks that offer relative value and stability,” said Ajit Mishra, SVP-Research at Religare Broking.

“Traders are advised to remain stock-specific, monitor stop-losses on profitable positions and avoid aggressive leverage amid expected volatility around expiration and data releases. A balanced approach with disciplined risk management remains crucial as markets enter the new year,” he added.

5. FII activity: As of December 27, foreign institutional investors (FIIs) have sold shares worth Rs 22,130 crore through the stock exchanges, taking the total share sale for calendar year 2025 to Rs 2,31,990 crore.

In contrast, FII investments through the primary market stood at Rs 73,583 crore, resulting in a net outflow of Rs 1,58,407 crore – marking the highest annual net turnover by FIIs since their entry into the Indian capital markets.

6. Currency: USD/INR traded marginally lower at around 89.75, declining from recent highs as capital outflows slowed and holiday-depleted liquidity curtailed momentum. Despite the near-term consolidation, the pair remains stuck to its multi-year ascending channel, with the broader structure of higher highs and higher lows firmly intact.

“The 89.50-89.20 zone remains a strong base of support and is likely to limit further downside developments. On the upside, resistance is seen in the 90.00-90.50 band, where a sustained break would be needed for momentum to accelerate again. As long as the pair remains above 89.50, the medium-term bias remains bullish, with room for a gradual move towards 92+ in early 2026, supported by the strength of the global dollar and policy differences continue to provide buying opportunities within the broader uptrend,” notes Ponmudi R, CEO of Enrich Money.

7. Crude Oil Prices: Crude oil prices rose slightly on global markets following geopolitical developments on Friday, including increased US pressure on Venezuelan oil exports and security concerns in parts of Africa. Brent crude rose 0.4% to $62.48 a barrel, rekindling concerns about inflation and input costs.

(Disclaimer: Recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of The Economic Times)