Amidst ongoing correction phase, Indian equity market is expected to remain volatile in the holiday-shortened week due to the expiry of February’s derivative contracts. Adding to it, trends in foreign institutional investor (FII) flows, updates on U.S. tariff policies, rupee-dollar movement, and domestic as well as global macro data will be key trigger for the stock market. Investors will also keep a close eye on Q3 GDP numbers set to be released post market hours on February 28. The stock market will be closed on February 26 for Mahashivratri holiday.

Today, the BSE Sensex and NSE Nifty are expected to open lower, tracking weak cues from Asian peers and negative closing at Wall Street on Friday. The weak trend at Gift Nifty also indicates a gap-down start for Sensex and Nifty, with Gift Nifty futures trading 101 points, or 0.45%, lower at 22,693 level.

“In light of the shortened monthly expiry week and the prevailing global uncertainties, we can expect an uptick in market volatility. Given the current landscape, it is prudent for traders to refrain from making overly aggressive bets and to adopt a more cautious approach, maintaining lighter positions on both the bullish and bearish sides,” says Osho Krishnan, Sr. Analyst, Technical & Derivatives, Angel One.

Sensex, Nifty extend loss for 2nd week

The equity benchmark indices Sensex and Nifty extended losing streak for the second straight week as sustained foreign fund outflows, hawkish tone of the Fed policy meeting minutes and the U.S. President Donald Trump’s comment on potential tariffs kept market sentiment subdued throughout the week. During the week ended February 21, the BSE the Sensex declined 628 points, or 0.8%, to settle at 75,311, while the Nifty fell 133 points, or 0.58%, to close at 22,796 level. Bucking the trend, BSE mid and small cap indices added 2.5% and 2%, respectively amid value buying in the backdrop of recent correction. On the sectoral front, a mixed trend was seen, with metals, energy, and realty outperforming, while auto, pharma, and FMCG emerging as the top laggards.

"The domestic market continued to exhibit broad-based weakness, primarily influenced by investor concerns over the hawkish tone of the FOMC minutes, which signalled prolonged higher interest rates that could constrain liquidity in EMs. Although the market has undergone a healthy correction, the uncertainties surrounding the gradual recovery of corporate earnings and ongoing tariff-related risks continue to cast doubt on valuation levels, particularly in the broader market,” says Vinod Nair, Head of Research, Geojit Financial Services.

Here are key triggers for the market this week:

FIIs flow trends

The fund outflows by foreign portfolio investors (FPIs) continued unabated in the Indian stock market last week as they pulled out ₹7,793 crore from the cash segment. FPIs have offloaded Indian equities worth ₹1,12,492 crore so far in calendar year 2025, including ₹81,903 crore in January, followed by ₹30,588 crore in February through 21st.

“India is currently lagging behind its Asian peers, as FII outflows remain high, with the "sell India, buy China" strategy continuing to yield returns for the time being, says Vinod Nair of Geojit Financial Services.

Global market cues

The global market dynamics will set tone for the domestic market, especially U.S. and China. On Friday, Wall Street ended sharply lower amid growing concerns about trade tariffs, softening consumer demand, and hawkish Federal Open Market Committee (FOMC) minutes tone. The weakness in U.S. stocks will have its negative impact on Asian equities today, including India.

Besides, performance of Chinese equities, which is attractively valued after a prolonged correction, will be closely watched. Recently, China has emerged as a major destination of portfolio flows, with the Hang Seng index (FIIs buy Chinese stocks through the Hong Kong stock market) surging by 18.7% in a month in sharp contrast to the 1.55% decline in the Nifty.

“China’s economic stimulus package announced in September 2024, which includes policy support, regulatory easing, and measures to boost FII sentiment, has renewed investor confidence in China's recovery narrative, says
Vaibhav Porwal, Co-Founder, Dezerv.

Since October 2024, India's market cap has fallen by about $1 trillion, while China's has risen by $2 trillion. This suggests a tactical shift in FII flows, says Porwal.

Q3 GDP data

The highly-anticipated December quarter gross domestic product (GDP) numbers will be released post market hours on Friday. The Q3 FY25 GDP print will be out at 4:00 pm on February 28, while the government will also release the second advance estimate for the full-year.

The Q3 GDP is pegged at around 6.2-6.4%, while full-year growth is seen dropping to a four-year low of 6.4%, raising concerns about India's corporate profitability and economic stability.

Revival of FII investment in India is highly dependent on economic growth and corporate earnings revive. Indications of that are likely to happen in two to three months, says analyst.

Monthly derivative expiry

The stock market may see volatility on the monthly derivative expiry day as traders and investors would square off their positions. “Looking ahead, the upcoming holiday-shortened week is expected to remain volatile due to the expiry of February’s derivative contracts. Additionally, trends in FII flows and updates on U.S. tariff policies will be closely watched,” says Ajit Mishra – SVP, Research, Religare Broking.

“On the benchmark front, a decisive break below 22,700 in Nifty could trigger the next leg of the downtrend, potentially dragging the index to 22,500 and then 22,000. On the upside, a recovery would first face resistance at 23,150 (20-DEMA), and a breakout above this level could extend gains towards the next major hurdle at 23,600 (200-DEMA),” adds Mishra.

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