Indian equity markets are showing signs of a tentative recovery on the final trading day of the year. The benchmark Nifty 50 index is expected to open higher on Wednesday, December 31, potentially ending a four-session streak of losses. However, analysts caution that persistent selling by foreign investors could restrict any significant upward movement.
Market Sentiment and Technical Indicators
The early signal for a positive start came from the Gift Nifty futures, which were trading at 26,116 points as of 7:40 a.m. IST. This level indicates an opening above the Nifty 50's previous close of 25,938.85 points on Tuesday. Despite this glimmer of hope, the underlying mood remains cautious. The 50-stock index has shed approximately 1% of its value over the last four trading sessions.
This decline has been fueled by sustained selling from foreign portfolio investors (FPIs), a trend magnified by typically lower trading volumes during the year-end period. Ponmudi R, the Chief Executive Officer of Enrich Money, noted that with many global markets closed or operating shortened hours for New Year's Eve, intraday volatility on Indian exchanges is likely to remain subdued.
Record FII Outflows and Market Underperformance
The concern over foreign capital flight is backed by stark data. Provisional figures show that foreign investors were net sellers of Indian equities worth 38.44 billion rupees ($428.31 million) on Tuesday alone. This selling spree has contributed to a massive annual outflow.
In a record year for foreign fund exits, investors have offloaded shares worth a staggering $18.5 billion in 2025. This relentless selling pressure has led to a rare event: Indian equities have underperformed compared to their peers in other emerging and Asian markets this year.
Analysts, however, anticipate a reversal of this trend in 2026. The expectation is rooted in a projected pickup in corporate earnings growth, which should make Indian stocks more attractive to global investors once again. It is worth noting that despite the recent pressure and FII exits, the Nifty 50 has still managed to post a gain of 9.7% in 2025. If sustained, this would mark the index's tenth consecutive annual gain.
Near-Term Triggers and Stocks in Focus
Market participants are now looking ahead, with the upcoming quarterly earnings season seen as a primary driver for equity prices in the near term. Corporate results will provide fresh cues on the health of the economy and company-specific prospects.
On Wednesday, specific stocks are likely to see action based on recent developments:
Bharat Forge has secured its largest-ever small arms contract from the Ministry of Defence, valued at 16.62 billion rupees. This significant order is expected to boost the company's revenue visibility.
Conversely, IndiGo is facing a tax demand. The Goods and Services Tax department has raised a claim of 4.58 billion rupees against the airline. The demand pertains to compensation received from a foreign supplier and the denial of Input Tax Credit.
