Markets stumble for third week; analysts see continued consolidation ahead

The Indian benchmark indices, the BSE Sensex and the NSE Nifty, extended their losing streak for the third consecutive week, as investors remained cautious amid a disappointing start to the earnings season and ongoing uncertainty surrounding the US-India trade deal. Adding to it, sustained selling by foreign institutional investors (FII), driven by elevated valuations in Indian equities and more attractive pricing in other global peers, also weighed on overall market performance.

Similar to the previous week’s trend, the benchmarks held firm during the first three trading sessions, but bearish sentiment resurfaced in the latter half. Eventually, both the Nifty and the Sensex ended the week near their lowest levels, closing at 24,968.40 and 81,757.73, respectively. While the 30-share Sensex shed 743 points during the week ended July 18, the Nifty50 lost 181 points during the same period.

However, the broader markets displayed some resilience, with the BSE Midcap and the BSE Smallcap indices ending marginally higher, gaining by up to 1%.

"Domestic equity markets continued their protracted correction for the third consecutive week and ended below the psychological level of 25K, weighed down by the broadly tepid start of Q1FY26 earnings, particularly from the IT and financial sectors,” said Vinod Nair, Head of Research, Geojit Investments.

Nair said that the IT sector remained under strain because of muted performance and cautious outlooks amid global demand uncertainty, while the financial sector is also expected to report subdued results due to expected net interest margin (NIM) contraction and asset quality concerns. In contrast, FMCG stocks outperformed, supported by encouraging growth guidance that points to a possible revival in urban consumption trends.

Key market drivers

While easing CPI and WPI inflation provided temporary relief and reinforced expectations that the Reserve Bank of India (RBI) would maintain its accommodative stance in the near term, macroeconomic concerns resurfaced, said Ajit Mishra, SVP-Research, Religare Broking.

“These were driven by a marginal decline in net direct tax collections and flat export performance in June. The first-quarter earnings season also failed to inspire confidence, with investors awaiting major corporate results for clearer direction,” Mishra.

Nair of Geojit Investments said that improved earnings momentum, supported by macroeconomic tailwinds, can shift investor preferences towards consumption stocks.

“On the global front, the markets are closely monitoring the outcome of the proposed US-India mini trade agreement. A favourable resolution could strengthen the outlook for export-oriented sectors and enhance India’s relative attractiveness among emerging markets,” he explained.

Meanwhile, the continued moderation in inflation has bolstered expectations of an additional rate cut, which, if materialised, would be supportive of market sentiment. As the earnings season progresses, quarterly updates from index heavyweights will be closely monitored.

“Strong earnings growth is vital to justify India's premium valuations," said Nair.

Key triggers for next week  

Investors will keep a close eye on the ongoing earnings season, with a series of major results lined up next week. The market participants will first react to the results of three heavyweights—Reliance Industries, HDFC Bank, and ICICI Bank—during early trade on Monday. A slew of big players including Infosys, Dr. Reddy’s Laboratories, Bajaj Finance, Nestlé India, and Cipla are scheduled to announce their quarterly results.

On the macroeconomic front, key data points such as India’s infrastructure output and HSBC Flash PMI figures for Manufacturing, Services, and Composite will be closely tracked.

Globally, market participants will monitor trade deal updates, which could influence FII flows and currency movements. At the same time, uncertainty persists as global markets recalibrate expectations for U.S. Federal Reserve rate cuts, amid sticky inflation and trade-related tensions.

Strategy ahead

“We expect the index to remain in a consolidation phase with a negative bias in the near term, driven by a weak start to the earnings season and prevailing global uncertainties. Traders are advised to stay selective and focus on stocks showing strong earnings performance and relative strength,” said Mishra of Religare Broking.

Among key sectors, metal, pharma, and realty appear relatively stronger, while auto and energy may consolidate and present selective opportunities.

While the broader indices continue to display relative strength, a cautious approach is recommended when initiating fresh trades, especially with several key earnings reports and macroeconomic triggers scheduled for the upcoming week, he said.

Technical outlook

In the last week, the benchmark indices witnessed profit booking at higher levels. Technically, on daily and intraday charts, the market is holding lower top patterns, and on weekly charts, it has formed a bearish candle, which is largely negative, said Amol Athawale, VP-Technical Research, Kotak Securities.

He projected that the short-term market texture is weak, but a fresh sell-off is possible only after the dismissal of 24,900 and 81,600 levels for the Nifty and the Sensex, respectively. Below this level, the market is likely to retest the levels of 24,600-24,500 and 80,700-80,400, respectively.